IRONWOOD PHARMACEUTICALS INC

FORM 10-K(Annual Report)

Filed 02/19/16 for the Period Ending 12/31/15

Address 301 BINNEY STREET

CAMBRIDGE, MA 02142Telephone 617-621-7722

CIK 0001446847Symbol IRWD

SIC Code 2834 - Pharmaceutical PreparationsIndustry Biotechnology & Drugs

Sector Healthcare

http://www.edgar-online.com© Copyright 2016, EDGAR Online, Inc. All Rights Reserved.

Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

UsetheselinkstorapidlyreviewthedocumentTABLEOFCONTENTSIndextoConsolidatedFinancialStatementsofIronwoodPharmaceuticals,Inc.

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UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION

Washington,D.C.20549

FORM10-K

CommissionFileNumber001-34620

IRONWOODPHARMACEUTICALS,INC.(Exactnameofregistrantasspecifiedinitscharter)

Delaware(Stateorotherjurisdictionofincorporationororganization)

04-3404176(I.R.S.Employer

IdentificationNumber)

301BinneyStreetCambridge,Massachusetts(AddressofPrincipalExecutive

Offices)

02142(ZipCode)

Registrant'stelephonenumber,includingareacode:(617)621-7722

SecuritiesregisteredpursuanttoSection12(b)oftheAct:

Titleofeachclass NameofeachexchangeonwhichregisteredClassAcommonstock,$0.001par

value TheNASDAQStockMarketLLC (NASDAQGlobalSelectMarket)

SecuritiesregisteredpursuanttoSection12(g)oftheAct:None

Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesýNoo

IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13or15(d)oftheExchangeAct.YesoNoý

Indicatebycheckmarkwhethertheregistrant:(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports)and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesýNoo

IndicatebycheckmarkwhethertheRegistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-Tduringthepreceding12months(orforsuchshorterperiodthattheRegistrantwasrequiredto

(MarkOne)

ý ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934

ForthefiscalyearendedDecember31,2015

OR

o TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934

Forthetransitionperiodfromto

submitandpostsuchfiles).YesýNoo

IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-Kisnotcontainedhereinandwillnotbecontained,tothebestofregistrant'sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.o

Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfilerorasmallerreportingcompany.Seedefinitionsof"largeacceleratedfiler,""acceleratedfiler"and"smallerreportingcompany"inRule12b-2oftheExchangeAct.

Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).YesoNoý

Aggregatemarketvalueofvotingstockheldbynon-affiliatesoftheRegistrantasofJune30,2015:$1,647,058,706

AsofFebruary12,2016,therewere127,453,930sharesofClassAcommonstockoutstandingand15,934,458sharesofClassBcommonstockoutstanding.

DOCUMENTSINCORPORATEDBYREFERENCE:

Portionsofthedefinitiveproxystatementforour2016AnnualMeetingofStockholdersareincorporatedbyreferenceintoPartIIIofthisreport.

Largeacceleratedfilerý Acceleratedfilero Non-acceleratedfilero(Donotcheckifa

smallerreportingcompany)

Smallerreportingcompanyo

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NOTEREGARDINGFORWARD-LOOKINGSTATEMENTS

ThisAnnualReportonForm10-K,includingthesectionstitled"Business,""RiskFactors"and"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations"containsforward-lookingstatements.AllstatementscontainedinthisAnnualReportonForm10-Kotherthanstatementsofhistoricalfactareforward-lookingstatements.Forward-lookingstatementsincludestatementsregardingourfuturefinancialposition,businessstrategy,budgets,projectedcosts,plansandobjectivesofmanagementforfutureoperations.Thewords"may,""continue,""estimate,""intend,""plan,""will,""believe,""project,""expect,""seek,""anticipate,""goal"andsimilarexpressionsmayidentifyforward-lookingstatements,buttheabsenceofthesewordsdoesnotnecessarilymeanthatastatementisnotforward-looking.Theseforward-lookingstatementsinclude,amongotherthings,statementsabout:

• thedemandandmarketpotentialforlinaclotideintheUnitedStates,ortheU.S.(LINZESS®),intheEuropeanUnion,ortheE.U.(CONSTELLA®),andinothercountrieswhereitisapprovedformarketing,aswellastherevenuestherefrom;

• thetiming,investmentandassociatedactivitiesinvolvedincommercializingLINZESSbyusandAllerganplcintheU.S.;

• thetimingandexecutionofthelaunchesandcommercializationofCONSTELLAintheE.U.;

• thetiming,investmentandassociatedactivitiesinvolvedindeveloping,launching,andcommercializinglinaclotidebyusandourpartnersworldwide;

• ourabilityandtheabilityofourpartnerstosecureandmaintainadequatereimbursementforlinaclotide;

• theabilityofourpartnersandthird-partymanufacturerstomanufactureanddistributesufficientamountsoflinaclotideactivepharmaceuticalingredient,orAPI,drugproductandfinishedgoodsonacommercialscale;

• ourexpectationsregardingU.S.andforeignregulatoryrequirementsforlinaclotideandourproductcandidates,includingourpost-approval,nonclinicalandclinicalpost-marketingplanwiththeFoodandDrugAdministration,ortheFDA;

• ourpartners'abilitytoobtainforeignregulatoryapprovaloflinaclotideandtheabilityofallofourproductcandidatestomeetexistingorfutureregulatorystandards;

• thesafetyprofileandrelatedadverseeventsoflinaclotideandourproductcandidates;

• thetherapeuticbenefitsandeffectivenessoflinaclotideandourproductcandidatesandthepotentialindicationsandmarketopportunitiestherefor;

• ourabilitytoobtainandmaintainintellectualpropertyprotectionforlinaclotideandourproductcandidatesandthestrengththereof;

• theabilityofourpartnerstoperformtheirobligationsunderourcollaboration,licenseandotheragreementswiththem,andourabilitytoachievemilestoneandotherpaymentsundersuchagreements;

• ourplanswithrespecttothedevelopment,manufactureorsaleofourproductcandidatesandtheassociatedtimingthereof,includingthedesignandresultsofpre-clinicalandclinicalstudies;

• thein-licensingoracquisitionofexternallydiscoveredbusinesses,productsortechnologies;

• ourexpectationsastofuturefinancialperformance,revenues,expenselevels,payments,cashflows,profitability,taxobligations,capitalraisingandliquiditysources,andrealestateneeds,aswellasthetiminganddriversthereof;

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• ourabilitytorepayouroutstandingindebtednesswhendue,orredeemorrepurchasealloraportionofsuchdebt,aswellasthepotentialbenefitsofthenotehedgetransactionsdescribedherein;

• inventorylevelsandwritedownsandthedriversthereof,andinventorypurchasecommitments;

• ourabilitytocompetewithothercompaniesthatareormaybedevelopingorsellingproductsthatarecompetitivewithourproductsandproductcandidates;

• thestatusofgovernmentregulationinthelifesciencesindustry,particularlywithrespecttohealthcarereform;

• trendsandchallengesinourpotentialmarkets;

• ourabilitytoattractandmotivatekeypersonnel;and

• otherfactorsdiscussedelsewhereinthisAnnualReportonForm10-K.

Anyorallofourforward-lookingstatementsinthisAnnualReportonForm10-Kmayturnouttobeinaccurate.Theseforward-lookingstatementsmaybeaffectedbyinaccurateassumptionsorbyknownorunknownrisksanduncertainties,includingtherisks,uncertaintiesandassumptionsidentifiedundertheheading"RiskFactors"inthisAnnualReportonForm10-K.Inlightoftheserisks,uncertaintiesandassumptions,theforward-lookingeventsandcircumstancesdiscussedinthisAnnualReportonForm10-Kmaynotoccurascontemplated,andactualresultscoulddiffermateriallyfromthoseanticipatedorimpliedbytheforward-lookingstatements.

Youshouldnotundulyrelyontheseforward-lookingstatements,whichspeakonlyasofthedateofthisAnnualReportonForm10-K.Unlessrequiredbylaw,weundertakenoobligationtopubliclyupdateorreviseanyforward-lookingstatementstoreflectnewinformationorfutureeventsorotherwise.Youshould,however,reviewthefactorsandriskswedescribeinthereportswewillfilefromtimetotimewiththeU.S.SecuritiesandExchangeCommission,ortheSEC,afterthedateofthisAnnualReportonForm10-K.

NOTEREGARDINGTRADEMARKS

LINZESS®andCONSTELLA®aretrademarksofIronwoodPharmaceuticals,Inc.AnyothertrademarksreferredtointhisAnnualReportForm10-Karethepropertyoftheirrespectiveowners.Allrightsreserved.

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Page PARTI

Item1. Business 5Item1A. RiskFactors 23Item1B. UnresolvedStaffComments 49Item2. Properties 50Item3. LegalProceedings 50Item4. MineSafetyDisclosures 50

PARTII Item5. MarketForRegistrant'sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquity

Securities 51

Item6. SelectedConsolidatedFinancialData 52Item7. Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations 55Item7A. QuantitativeandQualitativeDisclosuresaboutMarketRisk 83Item8. ConsolidatedFinancialStatementsandSupplementaryData 84Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 84Item9A. ControlsandProcedures 85Item9B. OtherInformation 88

PARTIII Item10. Directors,ExecutiveOfficersandCorporateGovernance 89Item11. ExecutiveCompensation 89Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 89Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 89Item14. PrincipalAccountantFeesandServices 89

PARTIV Item15. ExhibitsandFinancialStatementSchedules 90

Signatures 98 IndextoConsolidatedFinancialStatements F-1

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PARTI

Item1.Business

OurCompany

Weareacommercialbiotechnologycompanyleveragingourprovendevelopmentandcommercialcapabilitiesasweseektobringmultiplemedicinestopatients.Weareadvancingtwotherapeuticplatforms,whichincludeproductopportunitiesinareasoflargeunmetneed,includingirritablebowelsyndromewithconstipation,orIBS-C,andchronicidiopathicconstipation,orCIC,vascularandfibroticdiseases,andrefractorygastroesophagealrefluxdisease,orGERD.

Ourfirstandto-dateonlycommercialproduct,linaclotide,isavailabletoadultmenandwomensufferingfromIBS-CorCICintheUnitedStates,ortheU.S.,underthetrademarkednameLINZESS®,andisavailabletoadultmenandwomensufferingfromIBS-CincertainEuropeancountriesunderthetrademarkednameCONSTELLA®.WeandourU.S.partnerAllerganplc(togetherwithitsaffiliates),orAllergan(formerlyActavisplc),arealsoadvancinglinaclotidecolonicrelease,asecond-generationproductcandidatewiththepotentialtoimproveabdominalpainreliefinadultIBS-Cpatients,aswellasinpatientswithadditionalgastrointestinal,orGI,disorderswherelowerabdominalpainisapredominantsymptomsuchasIBS-mixed,orIBS-M.Further,weandAllerganareexploringwaystoenhancetheclinicalprofileofLINZESSbyseekingtoexpanditsutilitywithinIBS-CandCIC,aswellasstudyinglinaclotideinadditionalindicationsandpopulationstoassessitspotentialtotreatvariousGIconditions.Linaclotideisalsobeingdevelopedandcommercializedinotherpartsoftheworldbycertainofourpartners.Inaddition,weareadvancingotherGIdevelopmentprogramsforindicationssuchasrefractoryGERDanddiabeticgastroparesis.

Withinourvascular/fibroticplatform,weareleveragingourpharmacologicalexpertiseinguanylatecyclase,orGC,pathwaysgainedthroughthediscoveryanddevelopmentoflinaclotidetoadvancedevelopmentprogramstargetingsolubleguanylatecyclase,orsGC.sGCisavalidatedmechanismwiththepotentialforbroadtherapeuticutilityandmultipleopportunitiesforproductdevelopmentinvascularandfibroticdiseases,aswellasothertherapeuticareas.

OurGIandvascular/fibroticplatformsincludethefollowing:

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Thestatusofourdevelopmentprogramsinthetableaboverepresentstheongoingphaseofdevelopment,anddoesnotcorrespondtotheinitiationorcompletionofaparticularphase.Drugdevelopmentinvolvesahighdegreeofriskandinvestment,andthestatus,timingandscopeofourdevelopmentprogramsaresubjecttochange.Importantfactorsthatcouldadverselyaffectourdrugdevelopmenteffortsarediscussedinthe"RiskFactors"sectionofthisAnnualReportonForm10-K.AspartofthelinaclotidecolonicreleasePhaseIIbclinicaltrialinIBS-Cpatients,weandAllerganarealsoevaluatingasecondcolonicreleaseformulationthatisexpectedtoinformapathforwardinadditionalGIdisorders,suchasIBS-M.Initscurrenttargetproductprofile,IW-9179isawhollyownedasset.

LINZESSandourcurrentproductcandidateshaveallbeendiscoveredinternally.Webelieveourdiscoveryteamhascreatedanumberofpromisingcandidatesoverthepastfewyearsandhasdevelopedanextensiveintellectualpropertyestateineachoftheseareas.Wehavecommittedsignificantresourcesintotheresearchanddevelopmentofourproductcandidatesandintendtocontinuetodosofortheforeseeablefuture.FortheyearsendedDecember31,2015,2014and2013,researchanddevelopmentexpenseswereapproximately$108.7million,$101.9millionand$102.4million,respectively.Inaddition,weintendtoaccessexternally-discovereddrugcandidatesthatfitwithinourcorestrategy.Inevaluatingthesepotentialassets,weapplythesameinvestmentcriteriaasthoseusedforinvestmentsininternallydiscoveredassets.

WewereincorporatedinDelawareonJanuary5,1998asMicrobia,Inc.OnApril7,2008,wechangedournametoIronwoodPharmaceuticals,Inc.Todate,wehavededicatedsubstantiallyallofouractivitiestotheresearch,developmentandcommercializationoflinaclotide,aswellastotheresearchanddevelopmentofourotherproductcandidates.

GIPlatform

IBS-C/CIC

IBS-CandCICarechronic,functionalGIdisordersthatafflictmillionsofsufferersworldwide.Asmanyas13millionadultssufferfromIBS-Candasmanyas35millionadultssufferfromCICintheU.S.alone,accordingtoouranalysisofstudiesincludingNJTalley,etal.(publishedin1995intheAmericanJournalofEpidemiology),PPare,etal.(publishedin2001intheAmericanJournalofGastroenterology)andJ.F.Johanson,etal.(publishedin2007inAlimentaryPharmacologyandTherapeutics).SymptomsofIBS-Cincludeabdominalpain,discomfortorbloatingandconstipationsymptoms(e.g.,incompleteevacuation,infrequentbowelmovements,hard/lumpystools),whileCICisprimarilycharacterizedbyconstipationsymptoms.

Linaclotide—U.S.InAugust2012,theFDAapprovedLINZESSasaonce-dailytreatmentforadultmenandwomensufferingfromIBS-CorCIC.WeandAllerganbegancommercializingLINZESSintheU.S.inDecember2012.Linaclotideisthefirst,andtodate,onlyproductapprovedbytheU.S.FoodandDrugAdministration,orFDA,inanewclassofGImedicinescalledguanylatecyclasetype-C,orGC-C,agonists.WeandAllerganarealsoexploringdevelopmentopportunitiestoenhancetheclinicalprofileofLINZESSbyseekingtoexpanditsutilitywithinIBS-CandCIC,aswellasstudyinglinaclotideinadditionalindicationsandpopulationstoassessitspotentialtotreatvariousGIconditions.Forexample,inNovember2015,theFDAapprovedtheinclusionoflabelinginstructionsinthefullLINZESSPrescribingInformationallowingadultIBS-CandCICpatientswithswallowingdifficultiestheoptiontoadministerthecontentsofLINZESScapsulesinapplesauceorwater.

72mcgforCICinAdults.InOctober2015,wereportedpositivetop-linedatafromaPhaseIIIclinicaltrialintheU.S.withAllerganevaluatinga72mcgdoseoflinaclotideinadultpatientswithCIC.Webelievethesedatasupportthesubmissionofasupplementalnewdrugapplication,orsNDA,totheFDAforapprovaltomarketthe72mcgdoseoflinaclotideintheU.S.Ifapproved,the

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72mcgdosewouldprovideabroaderrangeoftreatmentoptionstophysiciansandadultCICpatientsintheU.S.

Pediatrics.WeandAllerganhaveestablishedanonclinicalandclinicalpost-marketingplanwiththeFDAtounderstandthesafetyandefficacyofLINZESSinpediatricpatients.Thefirststepinthisplanwastoundertakecertainadditionalnonclinicalstudies.WeandAllerganhavecompletedthesenonclinicalstudiesandhaveinitiatedtwoPhaseIIclinicalpediatricstudiesinIBS-Cpatientsagesevento17andfunctionalconstipationpatientsagesixto17.

UponFDA-approvalofLINZESSintheU.S.,wereceivedfiveyearsofexclusivityundertheDrugPriceCompetitionandPatentTermRestorationActof1984,ortheHatch-WaxmanAct.Inaddition,LINZESSiscoveredbyaU.S.compositionofmatterpatentthatexpiresin2026,includingpatenttermextension,aswellasthreeadditionalpatentscoveringthecommercialformulationofLINZESSandmethodsofusingthisformulationtotreatpatientswithIBS-CorCIC,allofwhichexpirein2031.

Linaclotide—Global.InNovember2012,theEuropeanCommissiongrantedmarketingauthorizationtoCONSTELLAforthesymptomatictreatmentofmoderatetosevereIBS-Cinadults.CONSTELLAisthefirst,andtodate,onlydrugapprovedintheEuropeanUnion,orE.U.,forIBS-C.OurformerEuropeanpartner,Almirall,S.A.,orAlmirall,begancommercializingCONSTELLAinEuropeinthesecondquarterof2013.InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan.Currently,CONSTELLAiscommerciallyavailableincertainEuropeancountries,includingtheUnitedKingdom,ItalyandSpain.

InDecember2013andFebruary2014,linaclotidewasapprovedinCanadaandMexico,respectively,asatreatmentforadultwomenandmensufferingfromIBS-CorCIC.AllerganhasexclusiverightstocommercializelinaclotideinCanadaasCONSTELLAand,throughasublicensefromAllergan,AlmirallhadexclusiverightstocommercializelinaclotideinMexicoasLINZESS.InMay2014,AllerganbegancommercializingCONSTELLAinCanadaandinJune2014,AlmirallbegancommercializingLINZESSinMexico.InOctober2015,AlmirallandAllerganterminatedthesublicensearrangementwithrespecttoMexico,returningtheexclusiverightstocommercializeCONSTELLAinMexicotoAllergan.CONSTELLAcontinuestobeavailabletoadultIBS-CpatientsinMexico.

AstellasPharmaInc.,orAstellas,ourpartnerinJapan,isdevelopinglinaclotideforthetreatmentofpatientswithIBS-Candchronicconstipationinitsterritory.InNovember2015,weandAstellasreportedpositivetop-linedatafromAstellas'PhaseIIIclinicaltrialoflinaclotideinadultpatientswithIBS-CforJapan.Webelievethesedatasupportthesubmissionofanewdrugapplication,orNDA,totheMinistryofHealth,LaborandWelfareforapprovaltomarketlinaclotideinJapan.WeandAstraZenecaAB,orAstraZeneca,areco-developinglinaclotideinChina,HongKongandMacau,withAstraZenecahavingprimaryresponsibilityforthelocaloperationalexecution.InDecember2015,weandAstraZenecafiledforapprovalwiththeChinaFoodandDrugAdministrationtomarketlinaclotideinChina.WecontinuetoassessalternativestobringlinaclotidetoIBS-CandCICsufferersinthepartsoftheworldoutsideofourpartneredterritories.

LinaclotideiscoveredbyEuropeanandJapanesecompositionofmatterpatents,allofwhichexpirein2024,subjecttopossiblepatenttermextension,aswellasChinesecompositionofmatterpatentsandcommercialformulationpatentswhichexpirein2024and2029,respectively.

LinaclotideColonicRelease.AbdominalpainisoneofthepredominantsymptomsassociatedwithIBS,withgreaterthan75%ofIBS-Cpatientsreportingcontinuousorfrequentabdominalpain,accordingtoinformationpublishedin2007bytheInternationalFoundationforFunctionalGastrointestinalDisorders.InPhaseIIIclinicaltrialssupportingitsU.S.approval,linaclotidewasdemonstratedtoreducetheabdominalpainassociatedwithIBS-C.

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WeandAllerganaredevelopinglinaclotidecolonicrelease,atargetedoraldeliveryformulationoflinaclotidedesignedtopotentiallyimproveabdominalpainreliefinadultIBS-Cpatients.InNovember2015,weandAllerganinitiatedaPhaseIIbclinicaltrialevaluatinglinaclotidecolonicreleaseinadultpatientswithIBS-C.

RefractoryGERD

IW-3718.Accordingtoastudypublishedin2010byH.El-SaraginAlimentaryPharmacology&Therapeuticsand2015U.S.censusdata,thereareanestimated10millionAmericanswhosufferregularlyfromsymptomsofgastroesophagealrefluxdisease,orGERD,suchasheartburnandregurgitation,despitereceivingthecurrentstandardofcareoftreatmentwithaprotonpumpinhibitor,orPPI,tosuppressstomachacid.ResearchsuggestssomerefractoryGERDpatientsmayexperiencerefluxofbilefromtheintestineintothestomachandesophagus.

WeareinvestigatingIW-3718,agastricretentiveformulationofabileacidsequestrantdesignedtobindoveranextendedperiodoftimetobilethatrefluxesintothestomachanduppersmallintestine,potentiallyprovidingsymptomaticreliefinpatientswithrefractoryGERD.InFebruary2015,wereportedtop-linedatafromanexploratoryPhaseIIaclinicalstudyofIW-3718inpatientswithrefractoryGERD.DatafromthisstudydemonstratedencouragingimprovementsinreliefofheartburnandcertainotherupperGIsymptomsoftenassociatedwithrefractoryGERD.

OtherGIDisorders

IW-9179.WeareinvestigatingIW-9179,aGC-CagonistdesignedtotargetupperGIconditions,forthetreatmentofgastroparesisandfunctionaldyspepsia.

GastroparesisisanupperGIdisorderinwhichthemusclesand/ornervesofthestomachdonotfunctionproperly,whichdisruptsthefunctionalactivitiesofthestomach.Diabeticgastroparesis,whichisthefocusofourPhaseIIastudydiscussedbelow,isaconditioninwhichsymptomsofgastroparesisoccurinpatientswithtype1ortype2diabetes,andhasadditionalharmfuleffectsonglycemiccontrol,aswellassecondaryeffectsonorgans,whichmayleadtoincreasedmortality.Informationpublishedin2009byH.P.Parkman,etal.inNeuro&Motprovidesthatgastroparesissymptomsarereportedbyapproximatelyfiveto12percentofdiabeticpatients.InDecember2014,weinitiatedarandomized,placebo-controlled,multi-sitePhaseIIaclinicalstudyevaluatingwhetherIW-9179canprovidesymptomaticrelieftoadultpatientswithdiabeticgastroparesis.

Functionaldyspepsia,orFD,isanupperGIdisordercharacterizedbykeysymptomsofepigastricpain,epigastricbloating,postprandialfullness,epigastricburning,nausea,belchingandearlysatiety.Baseduponastudypublishedin2005byG.R.LockeinNeuro&Mot,itisestimatedthatapproximately35millionpeoplesufferfromFDintheU.S.InOctober2014,wepresenteddatafromaPhaseIIaclinicalstudyevaluatingIW-9179forthetreatmentoffunctionaldyspepsia.PatientstreatedwithIW-9179reportedanumericallygreaterimprovementfrombaseline,comparedwithplacebo-treatedpatients,onsixoutofsevenFDsymptomsevaluated.ThemostcommonadverseeventinIW-9179-treatedpatientswasdiarrhea.EnrollmentinthisstudywaslimitedbystringentenrollmentcriteriathatsoughttoidentifypatientssufferingonlyfromGIsymptomsofFD.ThesedatainformourcontinuedworkwithGIexpertsandregulatoryauthoritiestodefinethepathtobringforwardnewtherapiesinFD.

LinaclotideColonicRelease.InadditiontoIBS-C,wearealsoexploringlinaclotidecolonicreleaseforuseinadditionalGIdisorderswherelowerabdominalpainisapredominantsymptom,includingIBS-M,ulcerativecolitisanddiverticulitis,amongothers.AspartofthelinaclotidecolonicreleasePhaseIIbclinicaltrialinIBS-Cpatients,weandAllerganarealsoevaluatingasecondcolonicreleaseformulationthatisexpectedtoinformapathforwardintheseadditionalGIdisorders.

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Linaclotide.WeandAllerganareevaluatinglinaclotideinadditionalindicationstoassessitspotentialtotreatvariousGIconditions.

WeandAllerganareexploringthepotentialoflinaclotidetoprovidereliefoftheGIdysfunctionassociatedwithopioidinducedconstipation,orOIC.InNovember2015,wereportedpositivetop-linedatafromaPhaseIIclinicalstudyevaluatinglinaclotideinadultpatientswithOICinwhichlinaclotide-treatedpatientsshowedastatisticallysignificantimprovementinbowelmovementfrequencycomparedtoplacebo-treatedpatients.Inaddition,theNationalCancerInstitute,orNCI,isexploringlinaclotideinaPhaseIbiomarkerstudy,inpartnershipwithusandAllergan,designedtoassessthecolorectalbioactivityoflinaclotideinhealthyvolunteers,andtoinformthefeasibilityanddesignofastudytoevaluatethepotentialforlinaclotidetopreventcolorectalcancer.TheNCIisfundingandmanagingtheclinicalstudy.

Vascular/FibroticPlatform

WeareadvancingdevelopmentprogramstargetingsGC,andexploringitsutilityinvascularandfibroticdiseases.ThestimulationofsGCisaclinicallyvalidatedapproachwithbroadtherapeuticpotential.Foundthroughoutthebody,sGCisanenzymethatisactivatedbythekeyregulatornitricoxidetoincreaselevelsofthesecondmessengercyclicguanosinemonophosphate,orcGMP,whichultimatelyregulatesprocessessuchasbloodflow,inflammationandfibrosis.Asmodulatorsofthesecorephysiologicalprocesses,sGCstimulatorsmayberelevantinthetreatmentofabroadrangeofdiseasesincludingcardiovasculardiseasessuchaspulmonaryarterialhypertensionandcongestiveheartfailure,aswellasmusculardystrophy,diabeticnephropathyandotherdisorders.Todate,wehaveidentifiedtwosGCdevelopmentcandidates,IW-1973andIW-1701,whichhavedistinctpharmacologicprofilesthatwebelievemaybedifferentiatingandenableopportunitiesinmultipleindications.

IW-1973.InNovember2015,weinitiatedaPhaseIbclinicalstudyofIW-1973.Thestudyincludestwostages:anopen-label,singledose,crossoverstageandarandomized,double-blind,placebo-controlled,multiple-ascending-dosestage.ThePhaseIbclinicalstudyisdesignedtoassessthesafety,tolerability,pharmacokineticprofileandpharmacodynamicseffectsofIW-1973inhealthysubjects.

IW-1701.InNovember2015,weinitiatedarandomized,double-blind,placebo-controlled,single-ascending-dosePhaseIaclinicalstudyofIW-1701toassessthesafety,tolerability,pharmacokineticprofileandpharmacodynamicseffectsofIW-1701inhealthysubjects.

CollaborationsandPartnerships

Aspartofourstrategy,wehaveestablisheddevelopmentandcommercialcapabilitiesthatweplantoleverageasweseektobringmultiplemedicinestopatients.WeintendtoplayanactiveroleinthedevelopmentandcommercializationofourinternallydevelopedproductsintheU.S.,andtoestablishastrongglobalbrandbyout-licensingcommercializationrightsinotherterritoriestohigh-performingpartners.Webelieveinthelong-termvalueofourdrugcandidates,soweseekcollaborationsthatprovidemeaningfuleconomicsandincentivesforusandanypotentialpartner.Furthermore,weseekpartnerswhoshareourvalues,culture,processesandvisionforourproducts,whichwebelievewillenableustoworkwiththosepartnerssuccessfullyfortheentirepotentialpatentlifeofourdrugs.Inadditiontoourinternallydevelopedproducts,wealsointendtoaccessinnovativeproductsthroughstrategictransactionsandleverageourexistingcapabilitiestodevelopandcommercializetheseproductsintheU.S.

ThefollowingchartshowsourrevenuefortheU.S.andterritoriesoutsideoftheU.S.asapercentageofourtotalrevenueforeachoftheyearsendedDecember31,2015,2014and2013.Revenueattributabletoourlinaclotidepartnershipscomprisedsubstantiallyallofourrevenueforeachoftheyearsindicated;noneofourotherproductcandidatesgeneratedrevenueduringtheseperiods.Further,wecurrentlyderivesubstantiallyallofourrevenuefromourLINZESScollaborationwith

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AllerganfortheU.S.andbelievethattherevenuesfromthiscollaborationwillcontinuetoconstituteasignificantportionofourtotalrevenuefortheforeseeablefuture.Inaddition,ourcollaborativearrangementsrevenueoutsideoftheU.S.hasfluctuatedfortheyearsendedDecember31,2015,2014and2013,andmaycontinuetofluctuateasaresultofthetimingandamountoflicensefeesandclinicalandcommercialmilestonesreceivedandrecognizedunderourcurrentandfuturestrategicpartnershipsoutsideoftheU.S.,aswellasthetimingandamountofroyaltiesfromthesalesoflinaclotideintheEuropean,CanadianorMexicanmarketsoranyothermarketswherelinaclotidereceivesapproval.

Wehavepursuedapartneringstrategyforcommercializinglinaclotidethathasenabledustoretainsignificantoversightoverlinaclotide'sdevelopmentandcommercializationworldwide,sharethecostswithcollaboratorswhosecapabilitiescomplementours,andretainasignificantportionoflinaclotide'sfuturelong-termvalue.AsofDecember31,2015,licensingfees,milestones,royaltiesandrelatedequityinvestmentsfromourlinaclotidepartnerstotaledapproximately$378.1million.Inaddition,weandAllerganjointlyfundthedevelopmentandcommercializationofLINZESSintheU.S.,sharingequallyinanynetprofitsorlosses,andweandAstraZenecajointlyfundthedevelopmentandcommercializationoflinaclotideinChina,HongKongandMacau,withAstraZenecareceiving55%ofthenetprofitsorincurring55%ofthenetlossesuntilacertainspecifiedcommercialmilestoneisachieved,atwhichtimeprofitsorlosseswillbesharedequallythereafter.SuchreimbursementsforourdevelopmentandcommercializationcostsreceivedfromAllerganintheU.S.orAstraZenecaareexcludedfromtheamountabove.WecontinuetoassessalternativestobringlinaclotidetoIBS-CandCICsufferersinthepartsoftheworldoutsideofourpartneredterritories.

Allerganplc.InSeptember2007,weenteredintoacollaborationagreementwithAllergantodevelopandcommercializelinaclotideforthetreatmentofIBS-C,CICandotherGIconditionsinNorthAmerica.Underthetermsofthecollaborationagreement,weandAllerganarejointlyandequallyfundingthedevelopmentandcommercializationofLINZESSintheU.S.,withequalshareofanyprofitsorlosses.Additionally,wegrantedAllerganexclusiverightstodevelopandcommercializelinaclotideinCanadaandMexicoinwhichwereceiveroyaltiesinthemid-teenspercentonnetsalesinthosecountries.Allerganissolelyresponsibleforthefurtherdevelopment,regulatoryapprovalandcommercializationoflinaclotideinthosecountriesandfundinganycosts.Totallicensing,milestonepaymentsandrelatedequityinvestmentstousundertheAllergancollaborationagreementforNorthAmericacouldtotalupto$330.0million,includingthe$205.0millionthatAllerganhasalreadypaidtousinlicensefeesanddevelopment-relatedmilestonesandthe$25.0millionofourcapitalstockthatAllerganhasalreadypurchased.

InApril2009,weenteredintoalicenseagreementwithAlmiralltodevelopandcommercializelinaclotideinEurope(includingtheCommonwealthofIndependentStatesandTurkey)forthetreatmentofIBS-C,CICandotherGIconditions.Underthetermsofthisagreement,wewereeligibletoreceivelicensing,milestonepaymentsandrelatedequityinvestmentsthatcouldhavetotaledupto$118.0million,includingthe$61.0millioninmilestones,netofforeignwithholdingtaxes,thatAlmirallalreadypaidtous,andthe$15.0millionofourcapitalstockthatAlmirallalreadypurchased.WewerealsoeligibletoreceiveroyaltiesbasedonsalesvolumeintheAlmirallterritory,beginninginthelow-twentiespercentandescalatingtothemid-fortiespercentthroughApril2017,andthereafterbeginninginthemid-twentiespercentandescalatingtothemid-fortiespercentatlowersalesthresholds.Theseroyaltypaymentswerereducedbythetransferpricepaidfortheactive

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2015 2014 2013 U.S. 92.3% 62.3% 12.9%Restofworld 7.7% 37.7% 87.1%

100.0% 100.0% 100.0%

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pharmaceuticalingredient,orAPI,includedintheproductactuallysoldintheAlmirallterritoryandothercontractualdeductions.InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,andweseparatelyenteredintoanamendmenttothelicenseagreementwithAllerganrelatingtothedevelopmentandcommercializationoflinaclotideinEurope.Pursuanttothetermsoftheamendment,(i)theremainingsales-basedmilestonespayabletousunderthelicenseagreementweremodifiedsuchthat,whenaggregatedwiththeremainingcommerciallaunchmilestones,theycouldtotalupto$42.5million,(ii)theroyaltiespayabletousduringthetermofthelicenseagreementweremodifiedsuchthattheroyaltiesbasedonsalesvolumeinEuropebegininthemid-singledigitpercentandescalatetotheupper-teenspercentbycalendaryear2019,and(iii)AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEuropefromus,aswellastheassociatedcosts.Furthermore,aswearenolongerresponsibleforthemanufacturingoflinaclotideAPIforEurope,theroyaltiesunderthelicenseagreementwillnolongerbereducedbythetransferpricepaidfortheAPIincludedintheproductactuallysoldbyAllerganinEuropeinanygivenperiod.

InAugust2015,weandAllerganenteredintoanagreementfortheco-promotionofVIBERZI™(eluxadoline)intheU.S.,Allergan'streatmentforadultssufferingfromIBSwithdiarrhea,orIBS-D.Underthetermsoftheagreement,ourclinicalsalesspecialistsaredetailingVIBERZItotheapproximately25,000healthcarepractitionerstowhomtheydetailLINZESS.AllerganisresponsibleforallcostsandactivitiesrelatingtothecommercializationofVIBERZIoutsideoftheco-promotion.Ourpromotionaleffortsarecompensatedbasedonthevolumeofcallsdeliveredbyoursalesforce,withthetermsoftheagreementreducingoreliminatingcertainoftheunfavorableadjustmentstoourshareofnetprofitsstipulatedbythelinaclotidecollaborationagreementwithAllerganforNorthAmerica,providedthatwedeliveraminimumnumberofVIBERZIcallsonphysicians.Wehavethepotentialtoachievemilestonepaymentsofupto$10.0millionbasedonthenetsalesofVIBERZIineachof2017and2018,andarealsocompensatedviareimbursementsformedicaleducationinitiatives.OurpromotionaleffortsundertheagreementbeganwhenVIBERZIbecamecommerciallyavailableinDecember2015,andwillcontinueuntilDecember31,2017,unlessearlierterminatedbyeitherpartypursuanttotheprovisionsoftheagreement.

InNovember2015,AllerganandPfizerInc.enteredintoadefinitiveagreementprovidingforthecombinationofthetwocompanies.Ourcollaborationforthedevelopmentandcommercializationoflinaclotide,aswellasouragreementtoco-promoteVIBERZI,remainsineffect.

AstellasPharmaInc.InNovember2009,weenteredintoalicenseagreementwithAstellastodevelopandcommercializelinaclotideforthetreatmentofIBS-C,CICandotherGIconditionsinJapan,SouthKorea,Taiwan,Thailand,thePhilippinesandIndonesia.AsaresultofanamendmenttothelicenseagreementexecutedinMarch2013,weregainedrightstolinaclotideinSouthKorea,Taiwan,Thailand,thePhilippinesandIndonesia.IflinaclotideissuccessfullydevelopedandcommercializedintheAstellasterritory,licensingandmilestonepaymentstouscouldtotalupto$75.0million,includingthe$30.0millionup-frontlicensingfeeandthe$15.0milliondevelopmentmilestonethathavealreadybeenpaidtous.IfAstellasreceivesapprovaltomarketandselllinaclotide,AstellaswillpayusgrossroyaltieswhichescalatebasedonsalesvolumeintheAstellasterritory,beginninginthelow-twentiespercent,lessthetransferpricepaidfortheAPIincludedintheproductactuallysoldintheAstellasterritoryandothercontractualdeductions.

AstraZenecaAB.InOctober2012,weenteredintoacollaborationwithAstraZenecatoco-developandco-commercializelinaclotideinChina,HongKongandMacau.Underthetermsoftheagreement,weandAstraZenecaarejointlyfundingthedevelopmentandcommercializationoflinaclotideintheAstraZenecaterritory,withAstraZenecareceiving55%ofthenetprofitsorincurring55%ofthenetlossesuntilacertainspecifiedcommercialmilestoneisachieved,atwhichtimeprofitsorlosseswillbesharedequallythereafter.IflinaclotideissuccessfullydevelopedandcommercializedinChina,totallicensingandmilestonepaymentstousunderthecollaborationagreementcouldtotalup

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to$150.0million,includingthe$25.0millionthatAstraZenecahasalreadypaidtous.Aspartofthecollaboration,Ironwood'ssalesforcepromotedAstraZeneca'sNEXIUM®(esomeprazolemagnesium),oneofAstraZeneca'sproducts,intheU.S.throughMay2014.

ExactSciencesCorp.InMarch2015,weandExactSciencesCorp,orExactSciences,enteredintoanagreementtoco-promoteCologuard®,thefirstandonlyFDA-approvednoninvasivestoolDNAscreeningtestforcolorectalcancer.Underthetermsoftheagreement,oursalesteamispromotingandeducatinghealthcarepractitionersregardingCologuard.Wearealsocollaboratingonmedicaleducationinitiativestosupportmorein-depthunderstandingofCologuardandtheimportanceofcolorectalcancerscreening.ExactSciencesmaintainsresponsibilityforallotheraspectsofthecommercializationofCologuardoutsideoftheco-promotion.Wearecompensatedviareimbursementsforsalesdetailing,promotionalsupportservicesandmedicaleducationinitiatives.Duringtheinitialone-yeartermoftheagreement,wecouldreceiveuptoamaximumreimbursementofapproximately$4.8million.WealsoearnroyaltiesonthenetsalesofCologuardgeneratedfromthehealthcarepractitionersonwhomwecalllessthesalespromotionreimbursementtous,suchroyaltiesbeingpayableduringthetermandforoneyearfollowingtheterminationofourco-promotionefforts.

Owner-relatedBusinessPrinciples

Weencourageallcurrentandpotentialstockholderstoreadtheowner-relatedbusinessprinciplesbelowthatguideouroverallstrategyanddecisionmaking.

1.Ironwood'sstockholdersownthebusiness;allofouremployeesworkforthem.

Eachofouremployeesalsohasequityinthebusiness,aligningtheirinterestswiththoseoftheirfellowstockholders.Asemployeesandco-ownersofIronwood,ourmanagementandemployeeteamseektoeffectivelyallocatescarcestockholdercapitaltomaximizetheaverageannualgrowthofpersharevalue.

Throughourpoliciesandcommunication,weseektoattractlike-mindedowner-orientedstockholders.Westrivetoeffectivelycommunicateourviewsofthebusinessopportunitiesandrisksovertimesothatenteringandexitingstockholdersaredoingsoatapricethatapproximatelyreflectsourintrinsicvalue.

2.Webelievewecanbestmaximizelong-termstockholdervaluebybuildingagreatpharmaceuticalfranchise.

WebelievethatIronwoodhasthepotentialtodeliveroutstandinglong-termreturnstostockholderswhoaresobertotherisksinherentinthepharmaceuticalproductlifecycleandtothepotentialdramatichighsandlowsalongtheway,andwhofocusonsuperiorlong-term,persharecashflows.

Sincethepharmaceuticalproductlifecycleislengthyandunpredictable,webelieveitiscriticaltohavealong-termstrategichorizon.Weworkhardtoembedourlong-termfocusintoourpoliciesandpractices,whichmaygiveusacompetitiveadvantageinattractinglike-mindedstockholdersandthehighestcaliberemployees.Ourcurrentandfutureemployeesmayperceivebothfinancialandqualitativeadvantagesinhavingtheirinventionsorhardworkresultinmarketeddrugsthattheyandtheirfellowstockholderscontinuetoown.Someofourkeypoliciesandpracticesthatarealignedwiththisimperativeinclude:

a.Ourdualclassequityvotingstructure(whichprovidesforsuper-votingrightsofourpre-IPOstockholdersonlyintheeventofachangeofcontrolvote)isdesignedtoconcentratechangeofcontroldecisionsinthehandsoflong-termfocusedownerswhohaveahistoryofexperiencewithus.

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b.Wegranteachofouremployeesstock-basedawards,andlong-termequityisasignificantcomponentoftheirtotalcompensation.Webelieveouremphasisonequityplaysanimportantroleinattractingandmotivatingtheowner-orientedemployeesweseekandaligningtheirinterestswiththoseoftheirfellowstockholders.

c.Wehaveadoptedachangeofcontrolseveranceplanforallofouremployeesthatisintendedtoencouragethemtobringforwardtheirbestideasbyprovidingthemwiththecomfortthatifachangeofcontroloccursandtheiremploymentisterminated,theywillstillhaveanopportunitytoshareintheeconomicvaluethattheyhavehelpedcreateforstockholders.

d.Allofthemembersofourboardofdirectorsareinvestorsinthecompany.Furthermore,eachdirectorisrequiredtoholdallsharesofstockacquiredaspaymentforhisorherserviceasadirectorthroughouthisorhertermontheboard.

e.OurpartnershipswithAllergan,AstellasandAstraZenecaallincludestandstillagreements,whichservetoprotectusfromanunwelcomeacquisitionattemptbyoneofourpartners.Inaddition,wehavechangeofcontrolprovisionsinourpartnershipagreementsinordertoprotecttheeconomicvalueoflinaclotideshouldtheacquirerofoneofourpartnersbeunableorunwillingtodevotethetimeandresourcesrequiredtomaximizelinaclotide'sbenefittopatientsintheirrespectiveterritory.

3.Weareandwillremaincarefulstewardsofourstockholders'capital.

Weworkintenselytoallocatecapitalcarefullyandprudently,continuallyreinforcingalean,cost-consciousculture.

Whilewearemindfulofthedecliningproductivityandinherentchallengesofpharmaceuticalresearchanddevelopment,weintendtoinvestindiscoveryanddevelopmentresearchformanyyearstocome.Oursingularpassionistocreate,developandcommercializenoveldrugcandidates,seekingtointegratethemostsuccessfuldrugmakingandmarketingpracticesofthepastandthebestoftoday'scutting-edgetechnologiesandbasicresearch,developmentandcommercializationadvances.

Whilewehopetoimprovetheproductivityandefficiencyofourdrugcreationeffortsovertime,ourdiscoveryprocessrevolvesaroundsmall,highlyinteractive,cross-functionalteams.Webelievethatthisisoneareawhereourrelativelysmallsizeisacompetitiveadvantage,sofortheforeseeablefuture,wedonotexpectourdrugdiscoveryteamtogrowbeyond100-150scientists.Wewillcontinuetoprioritizeconstrainedresourcesandmaintainorganizationaldiscipline.Onceinternallyorexternallyderivedcandidatesadvanceintodevelopment,compoundsfollowcarefulstage-gatedplans,withfurtheradvancementdependingoncleardatapoints.Sincemostpharmaceuticalresearchanddevelopmentprojectsfail,itiscriticalthatourteamsarerigorousinmakingearlygo/nogodecisions,followingthedata,terminatingunsuccessfulprograms,andallocatingscarcedollarsandtalenttothemostpromisingefforts,thusenhancingthelikelihoodoflatephasedevelopmentsuccess.

Ourglobaloperationsandcommercialteamstakeasimilarapproachtocapitalallocationanddecision-making.Byworkingwithourpartnerstoestablishredundancyateachcriticalnodeofthelinaclotideglobalsupplychain,wearemitigatingagainstafundamentalriskinherentwithpharmaceuticals—unanticipatedshortagesofcommercialproduct.Likewise,wehaveestablishedacommercialorganizationdedicatedtobringinginnovative,highly-valuedhealthcaresolutionstoallofourcustomers.Ourcommercialorganizationworkscloselyandmethodicallywithourglobalcommercializationpartners,strivingtomaximizelinaclotide'scommercialpotentialthroughfocusedeffortsaimedateducatingpatients,payersandhealthcareproviders.

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4.Ourfinancialgoalistomaximizelong-termpersharecashflows.

Ourgoalistomaximizelong-termcashflowspershare,andwewillprioritizethisevenifitleadstounevenshort-termfinancialresults.Ifandwhenwebecomeprofitable,weexpectandacceptunevenearningsgrowth.Ourunderlyingproductdevelopmentmodelisriskyandunpredictable,andwehavenointentiontoadvancemarginaldevelopmentcandidatesorconsummatesuboptimalin-licensetransactionsinanattempttofillanticipatedgapsinrevenuegrowth.Successfuldrugscanbeenormouslybeneficialtopatientsandhighlyprofitableandrewardingtostockholders,andwebelievestronglyinourabilitytooccasionally(butnotinregularorpredictablefashion)createandcommercializegreatmedicinesthatmakeameaningfuldifferenceinpatients'lives.

Ifandwhenwereachprofitability,wedonotintendtoissuequarterlyorannualearningsguidance;howeverweplantocontinuetobetransparentaboutthekeyelementsofourperformance,includingnear-termoperatingplansandlonger-termstrategicgoals.

OurStrategy

Ourmissionistocreatemedicinesthatmakeadifferenceforpatients,buildvalueforourfellowstockholders,andempowerourpassionateteam.OurcorestrategytoachievethismissionistoleverageourdevelopmentandcommercialcapabilitiesinaddressingGIdisordersaswellasourpharmacologicexpertiseinGCpathwaystobringmultiplemedicinestopatients.Keyelementsofourstrategyinclude:

• attractingandincentivizingateamwithasingularpassionforcreating,developingandcommercializingmedicinesthatcanmakeasignificantdifferenceinpatients'lives;

• successfullyandprofitablycommercializingLINZESSincollaborationwithAllerganintheU.S.;

• exploringdevelopmentopportunitiestoenhancetheclinicalprofileofLINZESSbyseekingtoexpanditsutilityinitsindicatedpopulations,aswellasstudyinglinaclotideinadditionalindications,populationsandformulationstoassessitspotentialtotreatvariousGIconditions;

• investinginourpipelineofnovelGIproductcandidatesandadvancingoursGCstimulatorstargetingvascular/fibroticdiseases;

• solidifyingandexpandingourpositionastheleaderinthefieldofGC-CagonistsandcGMPpharmacology;

• leveragingourU.S.-focusedcommercialcapabilitiesinmarketing,reimbursement,patientengagementandsales;

• evaluatingcandidatesoutsideofthecompanyforin-licensingoracquisitionopportunities;

• maximizingthecommercialpotentialofourdrugsandplayinganactiveroleintheircommercializationorfindpartnerswhoshareourvision,values,cultureandprocesses;

• supportingglobalpartnerstocommercializelinaclotideoutsideoftheU.S.;

• harvestingthemaximumvalueoflinaclotideoutsideofourcurrentlypartneredterritories;and,

• executingourstrategywithourstockholders'long-terminterestsinmindbyseekingtomaximizelong-termpersharecashflows.

Competition

Linaclotide,ouronlymarketedproducttodate,competesgloballywithcertainprescriptiontherapiesandover-the-counter,orOTC,productsforthetreatmentofIBS-CandCIC,ortheirassociatedsymptoms.

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Polyethyleneglycol,orPEG(suchasMiraLAX®),andlactuloseaccountforthemajorityofprescriptionlaxativetreatments.Bothagentsdemonstrateanimprovementinstoolfrequencyandconsistencybutdonotimprovebloating,abdominaldiscomfortortherecurrenceofsymptoms.ClinicaltrialsandproductlabelsdocumentseveraladverseeffectswithPEGandlactulose,includingexacerbationofbloating,crampingand,accordingtoastudypublishedin2005byL.E.Brandt,etal.intheAmericanJournalofGastroenterology,uptoa40%incidenceofdiarrhea.Overall,upto75%ofpatientstakingprescriptionlaxativesreportnotbeingcompletelysatisfiedwiththepredictabilityofwhentheywillexperienceabowelmovementontreatment,and50%werenotcompletelysatisfiedwithreliefofthemultiplesymptomsassociatedwithconstipation,accordingtotheJ.F.Johansonstudypublishedin2007inAlimentaryPharmacology&Therapeutics.

OTClaxativesmakeupthemajorityoftheIBS-CandCICtreatmentmarket,accordingtoaGIpatientlandscapesurveyperformedin2010byLiebermanetal.Giventhelowbarrierstoaccess,manyIBS-CandCICsuffererstryOTCfiberandlaxatives,butaccordingtothissamepatientlandscapesurvey,lessthanhalfofthemareverysatisfiedwiththeabilityoftheseOTCproductstomanagetheirsymptoms.TwoofthelargestsellingOTClaxativesintheU.S.,basedon2013U.S.salesvolumedatafromEuromonitorInternational,areMiraLAXandDulcolax®.

UntilthelaunchofLINZESS,theonlyavailableprescriptiontherapyforIBS-CandCICintheU.S.wasAmitiza®(lubiprostone),whichwasapprovedforthetreatmentofCICin2006,forthetreatmentofIBS-Cin2008,andforthetreatmentofopioid-inducedconstipationin2013.AmitizaisalsoapprovedforthetreatmentofCICintheUnitedKingdomandSwitzerland,andforthetreatmentofchronicconstipationinJapan.Thereareadditionalcompoundsinlate-stagedevelopmentbyothercompaniesforthetreatmentofpatientswithIBS-CandCIC.

ManufacturingandSupply

Wecurrentlymanageourglobalsupplyanddistributionoflinaclotidethroughacombinationofcontractmanufacturersandcollaborationpartners.Itisourobjectivetoproducesafeandeffectivemedicineonaworldwidebasis,withredundancybuiltintocriticalstepsofthesupplychain.Webelievethatwehavesufficientin-houseexpertisetomanageourmanufacturingandsupplychainnetworktomeetworldwidedemand.

Linaclotideproductionconsistsofthreephases—manufactureoftheAPI(sometimesreferredtoasdrugsubstance),manufactureofdrugproductandmanufactureoffinishedgoods.WehaveenteredintoagreementswithmultiplethirdpartymanufacturersfortheproductionoflinaclotideAPI.WebelieveourcommercialsuppliershavethecapabilitiestoproducelinaclotideAPIinaccordancewithcurrentgoodmanufacturingpractices,orGMP,onasufficientscaletomeetourdevelopmentandcommercialneeds.Ourcommercialsuppliersaresubjecttoroutineinspectionsbyregulatoryagenciesworldwideandalsoundergoperiodicauditandcertificationbyourqualitydepartment.InconnectionwiththetransferofAlmirall'sexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEurope.

EachofAllerganandAstellasisresponsiblefordrugproductandfinishedgoodsmanufacturing(includingbottlingandpackaging)foritsrespectiveterritories,anddistributingthefinishedgoodstowholesalers.Wehaveanagreementwithanindependentthirdpartytoserveasanadditionalsourceofdrugproductmanufacturingoflinaclotideforourpartneredterritoriesandwehaveworkedwithourpartnerstoachievesufficientredundancyinthiscomponentofthelinaclotidesupplychain.UnderourcollaborationwithAstraZeneca,weareaccountablefordrugproductandfinishedgoodsmanufacturingforChina,HongKongandMacau.

Priortolinaclotide,therewasnoprecedentforlong-termroomtemperatureshelfstorageformulationforanorallydosedpeptidetobeproducedinmillionsofcapsulesperyear.Oureffortstodatehaveledtoaformulationthatisbothcosteffectiveandabletomeetthestabilityrequirementsfor

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commercialpharmaceuticalproducts.Ourworkinthisareahascreatedanopportunitytoseekadditionalintellectualpropertyprotectionaroundthelinaclotideprogram.InconjunctionwithAllerganandAstellas,wehavefiledpatentapplicationsintheU.S.andforeignjurisdictionsandhavebeenissuedthreeU.S.patentstoprotectthecurrentcommercialformulationoflinaclotideaswellasrelatedformulations.ThethreeissuedU.S.patentsexpirein2031.Ifissued,thependingpatentapplicationswouldexpirein2029orlaterintheU.S.andforeignjurisdictionsandwouldbeeligibleforpotentialpatenttermadjustmentsorpatenttermextensionsincountrieswheresuchextensionsmaybeavailable.

SalesandMarketing

Fortheforeseeablefuture,weintendtodevelopandcommercializeourdrugsintheU.S.aloneorwithpartners,andexpecttorelyonpartnerstocommercializeourdrugsinterritoriesoutsidetheU.S.Inexecutingourstrategy,ourgoalistoretainsignificantworldwideoversightoverthedevelopmentprocessandcommercializationofourproducts,byplayinganactiveroleintheircommercializationorfindingpartnerswhoshareourvision,values,cultureandprocesses.

Wehavebuiltourcommercialcapabilities,includingmarketing,reimbursement,patientengagementandsales,aroundlinaclotide,withtheintenttoleveragethesecapabilitiesforfutureinternallyandexternallydevelopedproducts.Todate,wehaveestablishedahigh-qualitycommercialorganizationdedicatedtobringinginnovative,highly-valuedhealthcaresolutionstoourcustomers,includingpatients,payers,andhealthcareproviders.Aspartofourstrategy,weandAllerganhavebeeninvestinginadirect-to-consumerpatientawarenesscampaignforLINZESSdesignedtohelpadultsintheU.S.sufferingfromIBS-CorCICrecognizethesymptomsoftheirdisorder,describetheirsymptomstotheirdoctor,andasktheirdoctorwhetherLINZESScanhelpproactivelymanagetheirdisease.

Wearecoordinatingeffortswithallofourpartnerstoensurethatwelaunchandmaintainanintegrated,globallinaclotidebrand.Byleveragingtheknowledgebaseandexpertiseofourexperiencedcommercialteamandtheinsightsofeachofourlinaclotidecommercializationpartners,wecontinuallyimproveourcollectivemarketingstrategies.

PatentsandProprietaryRights

Weactivelyseektoprotecttheproprietarytechnologythatweconsiderimportanttoourbusiness,includingpursuingpatentsthatcoverourproductsandcompositions,theirmethodsofuseandtheprocessesfortheirmanufacture,aswellasanyotherrelevantinventionsandimprovementsthatarecommerciallyimportanttothedevelopmentofourbusiness.Wealsorelyontradesecretsthatmaybeimportanttothedevelopmentofourbusiness.

Oursuccesswilldependsignificantlyonourabilitytoobtainandmaintainpatentandotherproprietaryprotectionforthetechnology,inventionsandimprovementsweconsiderimportanttoourbusiness;defendourpatents;preservetheconfidentialityofourtradesecrets;andoperatewithoutinfringingthepatentsandproprietaryrightsofthirdparties.

LinaclotidePatentPortfolio

OurlinaclotidepatentportfolioiscurrentlycomposedofnineU.S.patentslistedintheFDApublication,"ApprovedDrugProductswithTherapeuticEquivalenceEvaluations"(alsoknownasthe"OrangeBook"),threegrantedEuropeanpatents(eachofwhichhasbeenvalidatedin31Europeancountries),fivegrantedJapanesepatents,fourgrantedChinesepatents,33issuedpatentsinotherforeignjurisdictions,andnumerouspendingprovisional,U.S.non-provisional,foreignandPCTpatentapplications.Weownorjointlyownalloftheissuedpatentsandpendingapplications.

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TheissuedU.S.patents,whichwillexpirebetween2024and2031,containclaimsdirectedtothelinaclotidemolecule,pharmaceuticalcompositionsthereof,methodsofusinglinaclotidetotreatGIdisorders,processesformakingthemolecule,androomtemperaturestableformulationsoflinaclotideandmethodsofusethereof.ThegrantedEuropeanpatents,whichwillexpirein2024,subjecttopotentialpatenttermextension,containclaimsdirectedtothelinaclotidemolecule,pharmaceuticalcompositionsthereofandusesoflinaclotidetopreparemedicamentsfortreatingGIdisorders.ThegrantedChinesepatents,whichwillexpirebetween2024and2031,andthegrantedJapanesepatents,whichwillexpirebetween2024and2029subjecttopotentialpatenttermextension,containclaimsdirectedtothelinaclotidemolecule,pharmaceuticalcompositionsoflinaclotideforuseintreatingGIdisorders,androomtemperaturestableformulationsoflinaclotide.

Wehavependingpatentapplicationsworldwidecoveringthecurrentcommercialformulationoflinaclotidethat,ifissued,willexpirein2029orlater.

Wehavependingapplicationsdirectedtolinaclotideproductsunderdevelopmentthatwillextendpatentprotection,ifissued,until2035orlater.Wealsohavependingprovisional,U.S.non-provisional,foreignandPCTapplicationsdirectedtolinaclotideandrelatedmolecules,pharmaceuticalformulationsthereof,methodsofusinglinaclotidetotreatvariousdiseasesanddisordersandprocessesformakingthemolecule.Theseadditionalpatentapplications,ifissued,willexpirebetween2024and2036.

ThepatenttermofapatentthatcoversanFDA-approveddrugisalsoeligibleforpatenttermextension,whichpermitspatenttermrestorationascompensationforsomeofthepatenttermlostduringtheFDAregulatoryreviewprocess.TheHatch-WaxmanActpermitsapatenttermextensionofasinglepatentapplicabletoanapproveddrugforuptofiveyearsbeyondtheexpirationofthepatentbuttheextensioncannotextendtheremainingtermofapatentbeyondatotalof14yearsfromthedateofproductapprovalbytheFDA.TheUnitedStatesPatentandTrademarkOfficehasissuedaCertificateofPatentTermExtensionforU.S.Patent7,304,036,whichcoverslinaclotideandmethodsofusethereof.Asaresult,thepatenttermofthispatentwasextendedtoAugust30,2026,14yearsfromthedateoflinaclotide'sapprovalbytheFDA.SimilarprovisionsareavailableinEuropeandcertainotherforeignjurisdictionstoextendthetermofapatentthatcoversanapproveddrug.

PipelinePatentPortfolio

OurpipelinepatentportfoliorelatingtoourdevelopmentprogramsoutsideoflinaclotideiscurrentlycomposedofeightissuedU.S.patents;11issuedpatentsinforeignjurisdictions;andnumerouspendingprovisional,U.S.non-provisional,foreignandPCTpatentapplications.Weownalloftheissuedpatentsandpendingapplications.TheissuedU.S.patentsexpirebetween2028and2032.Theforeignissuedpatentsexpirebetween2027and2036.Thependingpatentapplications,ifissued,willexpirebetween2027and2035.

AdditionalIntellectualProperty

InadditiontothepatentsandpatentapplicationsrelatedtolinaclotideandourGIandsGCpipeline,wecurrentlyhavefiveissuedU.S.patents;sixpatentsgrantedinforeignjurisdictions;andanumberofpendingprovisional,U.S.non-provisional,foreignandPCTapplicationsdirectedtootherGC-Cagonistmoleculesandusesthereof.Wealsohaveotherissuedpatentsandpendingpatentapplicationsrelatingtoourotherresearchanddevelopmentprograms,andwearethelicenseeofanumberofissuedpatentsandpendingpatentapplications.

Thetermofindividualpatentsdependsuponthelegaltermofthepatentsinthecountriesinwhichtheyareobtained.Inmostcountriesinwhichwefile,thepatenttermis20yearsfromthedateoffilingthenon-provisionalapplication.IntheU.S.,apatent'stermmaybelengthenedbypatenttermadjustment,whichcompensatesapatenteeforadministrativedelaysbytheU.S.PatentandTrademark

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Officeingrantingapatent,ormaybeshortenedifapatentisterminallydisclaimedoveranearlier-filedpatent.Wealsoexpecttoapplyforpatenttermextensionsforsomeofourpatentsonceissued,dependinguponthelengthofclinicaltrialsandotherfactorsinvolvedinthesubmissionofaNDA.

GovernmentRegulation

IntheU.S.,pharmaceuticalproductsaresubjecttoextensiveregulationbytheFDA.TheFederalFood,Drug,andCosmeticActandotherfederalandstatestatutesandregulations,govern,amongotherthings,theresearch,development,testing,manufacture,storage,recordkeeping,approval,labeling,promotionandmarketing,distribution,FDApostmarketingrequirementsandassessments,post-approvalmonitoringandreporting,sampling,andimportandexportofpharmaceuticalproducts.TheFDAhasverybroadenforcementauthorityandfailuretoabidebyapplicableregulatoryrequirementscanresultinadministrativeorjudicialsanctionsbeingimposedonus,includingwarningletters,refusalsofgovernmentcontracts,clinicalholds,civilpenalties,injunctions,restitution,disgorgementofprofits,recallorseizureofproducts,totalorpartialsuspensionofproductionordistribution,withdrawalofapproval,refusaltoapprovependingapplications,andcivilorcriminalprosecution.

FDAApprovalProcess

WebelievethatourproductcandidateswillberegulatedbytheFDAasdrugs.NocompanymaymarketanewdruguntilithassubmittedanNDAtotheFDA,andtheFDAhasapprovedit.ThestepsrequiredbeforetheFDAmayapproveanNDAgenerallyinclude:

• conductingnonclinicallaboratorytestsandanimaltestsincompliancewithFDA'sgoodlaboratorypracticerequirements;

• development,manufactureandtestingofactivepharmaceuticalproductanddosageformssuitableforhumanuseincompliancewithcurrentGMP;

• conductingadequateandwell-controlledhumanclinicaltrialsthatestablishthesafetyandefficacyoftheproductforitsspecificintendeduse(s);

• InordertoevaluateadruginhumansintheU.S.,aninvestigationalnewdrugapplication,orIND,mustbesubmittedandcomeintoeffectbeforehumanclinicaltrialsmaybegin.

• thesubmissiontotheFDAofanNDA;

• satisfactorycompletionofoneormoreFDAinspectionsofthemanufacturingfacilityorfacilitiesatwhichtheproduct,orcomponentsthereof,areproducedtoassesscompliancewithcurrentGMPrequirementsandtoassurethatthefacilities,methodsandcontrolsareadequatetopreservetheproduct'sidentity,strength,qualityandpurity;and

• InspectionsofothersourcesofdataintheNDA,suchasinspectionofclinicaltrialsitestoassesscompliancewithgoodclinicalpractice,orGCP,requirementsarealsogenerallyrequired.

• FDAreviewandapprovaloftheNDA.

Nonclinicaltestsincludelaboratoryevaluationoftheproductcandidate,aswellasanimalstudiestoassessthepotentialsafetyandefficacyoftheproductcandidate.Theconductofthenonclinicaltestsmustcomplywithfederalregulationsandrequirementsincludinggoodlaboratorypractices.Wemustsubmittheresultsofthenonclinicaltests,togetherwithmanufacturinginformation,analyticaldataandaproposedclinicaltrialprotocoltotheFDAaspartofanIND,whichmustbecomeeffectivebeforewemaycommencehumanclinicaltrialsintheU.S.TheINDwillautomaticallybecomeeffective30daysafteritsreceiptbytheFDA,unlesstheFDAraisesconcernsorquestionsbeforethattime

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abouttheconductoftheproposedtrial.Insuchacase,wemustworkwiththeFDAtoresolveanyoutstandingconcernsbeforetheclinicaltrialcanproceed.WecannotbesurethatsubmissionofanINDwillresultintheFDAallowingclinicaltrialstobegin,orthat,oncebegun,issueswillnotarisethatwillcauseusortheFDAtomodify,suspendorterminatesuchtrials.Thestudyprotocolandinformedconsentinformationforpatientsinclinicaltrialsmustalsobesubmittedtoaninstitutionalreviewboardforapproval.Aninstitutionalreviewboardmayalsorequiretheclinicaltrialatthesitetobehalted,eithertemporarilyorpermanently,forfailuretocomplywiththeinstitutionalreviewboard'srequirementsorifthetrialhasbeenassociatedwithunexpectedseriousharmtosubjects.Aninstitutionalreviewboardmayalsoimposeotherconditionsonthetrial.

Clinicaltrialsinvolvetheadministrationoftheproductcandidatetohumansunderthesupervisionofqualifiedinvestigators,generallyphysiciansnotemployedbyorunderthetrialsponsor'scontrol.Clinicaltrialsaretypicallyconductedinthreesequentialphases,thoughthephasesmayoverlaporbecombined.InPhaseI,theinitialintroductionofthedrugintohealthyhumansubjects,thedrugisusuallytestedforsafety(adverseeffects),dosagetoleranceandpharmacologicaction,aswellastounderstandhowthedrugistakenupbyanddistributedwithinthebody.PhaseIIusuallyinvolvesstudiesinalimitedpatientpopulation(individualswiththediseaseunderstudy)to:

• evaluatepreliminarilytheefficacyofthedrugforspecific,targetedconditions;

• determinedosagetoleranceandappropriatedosageaswellasotherimportantinformationabouthowtodesignlargerPhaseIIItrials;and

• identifypossibleadverseeffectsandsafetyrisks.

PhaseIIItrialsgenerallyfurtherevaluateclinicalefficacyandtestforsafetywithinanexpandedpatientpopulation.Theconductofclinicaltrialsissubjecttoextensiveregulation,includingcompliancewithGCPregulationsandguidance,andregulationsdesignedtoprotecttherightsandsafetyofsubjectsinvolvedininvestigations.

TheFDAmayorderthetemporaryorpermanentdiscontinuationofaclinicaltrialatanytimeorimposeothersanctionsifitbelievesthattheclinicaltrialisnotbeingconductedinaccordancewithFDArequirementsorpresentsanunacceptablerisktotheclinicaltrialpatients.Wemayalsosuspendclinicaltrialsatanytimeonvariousgrounds.

Theresultsofthenonclinicalandclinicalstudies,togetherwithotherdetailedinformation,includingthemanufactureandcompositionoftheproductcandidate,aresubmittedtotheFDAintheformofanNDArequestingapprovaltomarketthedrug.FDAapprovaloftheNDAisrequiredbeforemarketingoftheproductmaybeginintheU.S.IftheNDAcontainsallpertinentinformationanddata,theFDAwill"file"theapplicationandbeginreview.Thereviewprocess,however,maybeextendedbyFDArequestsforadditionalinformation,nonclinicalorclinicalstudies,clarificationregardinginformationalreadyprovidedinthesubmission,orsubmissionofariskevaluationandmitigationstrategy.TheFDAmayreferanapplicationtoanadvisorycommitteeforreview,evaluationandrecommendationastowhethertheapplicationshouldbeapproved.TheFDAisnotboundbytherecommendationsofanadvisorycommittee,butitconsiderssuchrecommendationscarefullywhenmakingdecisions.BeforeapprovinganNDA,theFDAwilltypicallyinspectthefacilitiesatwhichtheproductcandidateismanufacturedandwillnotapprovetheproductcandidateunlesscurrentGMPcomplianceissatisfactory.FDAalsotypicallyinspectsfacilitiesresponsibleforperforminganimaltesting,aswellasclinicalinvestigatorswhoparticipateinclinicaltrials.TheFDAmayrefusetoapproveanNDAifapplicableregulatorycriteriaarenotsatisfied,ormayrequireadditionaltestingorinformation.TheFDAmayalsolimittheindicationsforuseand/orrequirepost-marketingtestingandsurveillancetomonitorthesafetyorefficacyofaproduct.Oncegranted,productapprovalsmaybewithdrawnifcompliancewithregulatorystandardsisnotmaintainedorproblemsareidentifiedfollowinginitialmarketing.

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Thetestingandapprovalprocessrequiressubstantialtime,effortandfinancialresources,andourproductcandidatesmaynotbeapprovedonatimelybasis,ifatall.ThetimeandexpenserequiredtoperformtheclinicaltestingnecessarytoobtainFDAapprovalforregulatedproductscanfrequentlyexceedthetimeandexpenseoftheresearchanddevelopmentinitiallyrequiredtocreatetheproduct.Theresultsofnonclinicalstudiesandinitialclinicaltrialsofourproductcandidatesarenotnecessarilypredictiveoftheresultsfromlarge-scaleclinicaltrials,andclinicaltrialsmaybesubjecttoadditionalcosts,delaysormodificationsduetoanumberoffactors,includingdifficultyinobtainingenoughpatients,investigatorsorproductcandidatesupply.Failurebyusorourcollaborators,licensorsorlicensees,includingAllergan,AstellasandAstraZeneca,toobtain,oranydelayinobtaining,regulatoryapprovalsorincomplyingwithrequirementscouldadverselyaffectcommercializationandourabilitytoreceiveproductorroyaltyrevenues.

Hatch-WaxmanAct

TheHatch-WaxmanActestablishedabbreviatedapprovalproceduresforgenericdrugs.Approvaltomarketanddistributethesedrugsisobtainedbysubmittinganabbreviatednewdrugapplication,orANDA,withtheFDA.Theapplicationforagenericdrugis"abbreviated"becauseitneednotincludenonclinicalorclinicaldatatodemonstratesafetyandeffectivenessandmayinsteadrelyontheFDA'spreviousfindingthatthebranddrug,orreferencedrug,issafeandeffective.InordertoobtainapprovalofanANDA,anapplicantmust,amongotherthings,establishthatitsproductisbioequivalenttoanexistingapproveddrugandthatithasthesameactiveingredient(s),strength,dosageform,andthesamerouteofadministration.Agenericdrugisconsideredbioequivalenttoitsreferencedrugiftestingdemonstratesthattherateandextentofabsorptionofthegenericdrugisnotsignificantlydifferentfromtherateandextentofabsorptionofthereferencedrugwhenadministeredundersimilarexperimentalconditions.

TheHatch-WaxmanActalsoprovidesincentivesbyawarding,incertaincircumstances,certainlegalprotectionsfromgenericcompetition.Thisprotectioncomesintheformofanon-patentexclusivityperiod,duringwhichtheFDAmaynotaccept,orapprove,anapplicationforagenericdrug,whethertheapplicationforsuchdrugissubmittedthroughanANDAorathroughanotherformofapplication,knownasa505(b)(2)application.

TheHatch-WaxmanActgrantsfiveyearsofexclusivitywhenacompanydevelopsandgainsNDAapprovalofanewchemicalentitythathasnotbeenpreviouslyapprovedbytheFDA.ThisexclusivityprovidesthattheFDAmaynotacceptanANDAor505(b)(2)applicationforfiveyearsafterthedateofapprovalofpreviouslyapproveddrug,orfouryearsinthecaseofanANDAor505(b)(2)applicationthatchallengesapatentclaimingthereferencedrug(seediscussionbelowregardingParagraphIVCertifications).TheHatch-WaxmanActalsoprovidesthreeyearsofexclusivityforapprovedapplicationsfordrugsthatarenotnewchemicalentities,iftheapplicationcontainstheresultsofnewclinicalinvestigations(otherthanbioavailabilitystudies)thatwereessentialtoapprovaloftheapplication.Examplesofsuchapplicationsincludeapplicationsfornewindications,dosageforms(includingnewdrugdeliverysystems),strengths,orconditionsofuseforanalreadyapprovedproduct.Thisthree-yearexclusivityperiodonlyprotectsagainstFDAapprovalofANDAsand505(b)(2)applicationsforgenericdrugsthatincludetheinnovationthatrequirednewclinicalinvestigationsthatwereessentialtoapproval;itdoesnotprohibittheFDAfromacceptingorapprovingANDAsor505(b)(2)NDAsforgenericdrugsthatdonotincludesuchaninnovation.

ParagraphIVCertifications.UndertheHatch-WaxmanAct,NDAapplicantsandNDAholdersmustprovideinformationaboutcertainpatentsclaimingtheirdrugsforlistingintheFDApublication,"ApprovedDrugProductswithTherapeuticEquivalenceEvaluations,"alsoknownasthe"OrangeBook."WhenanANDAor505(b)(2)applicationissubmitted,itmustcontainoneofseveralpossiblecertificationsregardingeachofthepatentslistedintheOrangeBookforthereferencedrug.A

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certificationthatalistedpatentisinvalidorwillnotbeinfringedbythesaleoftheproposedproductiscalleda"ParagraphIV"certification.

Within20daysoftheacceptancebytheFDAofanANDAor505(b)(2)applicationcontainingaParagraphIVcertification,theapplicantmustnotifytheNDAholderandpatentownerthattheapplicationhasbeensubmitted,andprovidethefactualandlegalbasisfortheapplicant'sopinionthatthepatentisinvalidornotinfringed.TheNDAholderorpatentholdermaytheninitiateapatentinfringementsuitinresponsetotheParagraphIVnotice.Ifthisisdonewithin45daysofreceivingnoticeoftheParagraphIVcertification,a30-monthstayoftheFDA'sabilitytoapprovetheANDAor505(b)(2)applicationistriggered.TheFDAmayapprovetheproposedproductbeforetheexpirationofthe30-monthstayonlyifacourtfindsthepatentinvalidornotinfringed,orifthecourtshortenstheperiodbecausethepartieshavefailedtocooperateinexpeditingthelitigation.

PatentTermRestoration.UndertheHatch-WaxmanAct,aportionofthepatenttermlostduringproductdevelopmentandFDAreviewofanNDAor505(b)(2)applicationisrestoredifapprovaloftheapplicationisthefirstpermittedcommercialmarketingofadrugcontainingtheactiveingredient.Thepatenttermrestorationperiodisgenerallyone-halfthetimebetweentheeffectivedateoftheINDandthedateofsubmissionoftheNDA,plusthetimebetweenthedateofsubmissionoftheNDAandthedateofFDAapprovaloftheproduct.Themaximumperiodofpatenttermextensionisfiveyears,andthepatentcannotbeextendedtomorethan14yearsfromthedateofFDAapprovaloftheproduct.Onlyonepatentclaimingeachapprovedproductiseligibleforrestorationandthepatentholdermustapplyforrestorationwithin60daysofapproval.TheU.S.PatentandTrademarkOffice,inconsultationwiththeFDA,reviewsandapprovestheapplicationforpatenttermrestoration.

OtherRegulatoryRequirements

Afterapproval,drugproductsaresubjecttoextensivecontinuingregulationbytheFDA,whichincludecompanyobligationstomanufactureproductsinaccordancewithcurrentGMP,maintainandprovidetotheFDAupdatedsafetyandefficacyinformation,reportadverseexperienceswiththeproduct,keepcertainrecordsandsubmitperiodicreports,obtainFDAapprovalofcertainmanufacturingorlabelingchanges,andcomplywithFDApromotionandadvertisingrequirementsandrestrictions.Failuretomeettheseobligationscanresultinvariousadverseconsequences,bothvoluntaryandFDA-imposed,includingproductrecalls,withdrawalofapproval,restrictionsonmarketing,andtheimpositionofcivilfinesandcriminalpenaltiesagainsttheNDAholder.Inaddition,laterdiscoveryofpreviouslyunknownsafetyorefficacyissuesmayresultinrestrictionsontheproduct,manufacturerorNDAholder.

WeandanymanufacturersofourproductsarerequiredtocomplywithapplicableFDAmanufacturingrequirementscontainedintheFDA'scurrentGMPregulations.CurrentGMPregulationsrequire,amongotherthings,qualitycontrolandqualityassuranceaswellasthecorrespondingmaintenanceofrecordsanddocumentation.ThemanufacturingfacilitiesforourproductsmustmeetcurrentGMPrequirementstothesatisfactionoftheFDApursuanttoapre-approvalinspectionbeforewecanusethemtomanufactureourproducts.Weandanythird-partymanufacturersarealsosubjecttoperiodicinspectionsoffacilitiesbytheFDAandotherauthorities,includingproceduresandoperationsusedinthetestingandmanufactureofourproductstoassessourcompliancewithapplicableregulations.

Withrespecttopost-marketproductadvertisingandpromotion,theFDAimposesanumberofcomplexregulationsonentitiesthatadvertiseandpromotepharmaceuticals,whichinclude,amongothers,standardsfordirect-to-consumeradvertising,prohibitionsonpromotingdrugsforusesorinpatientpopulationsthatarenotdescribedinthedrug'sapprovedlabeling(knownas"off-labeluse"),andprinciplesgoverningindustry-sponsoredscientificandeducationalactivities.FailuretocomplywithFDArequirementscanhavenegativeconsequences,includingadversepublicity,enforcementletters

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fromtheFDA,mandatedcorrectiveadvertisingorcommunicationswithdoctorsorpatients,andcivilorcriminalpenalties.Althoughphysiciansmayprescribelegallyavailabledrugsforoff-labeluses,manufacturersmaynotmarketorpromotesuchoff-labeluses.

Changestosomeoftheconditionsestablishedinanapprovedapplication,includingchangesinindications,labeling,ormanufacturingprocessesorfacilities,requiresubmissionandFDAapprovalofanewNDAorNDAsupplementbeforethechangecanbeimplemented.AnNDAsupplementforanewindicationtypicallyrequiresclinicaldatasimilarintypeandqualitytotheclinicaldatasupportingtheoriginalapplicationfortheoriginalindication,andtheFDAusessimilarproceduresandactionsinreviewingsuchNDAsupplementsasitdoesinreviewingNDAs.

AdverseeventreportingandsubmissionofperiodicreportsisrequiredfollowingFDAapprovalofanNDA.TheFDAalsomayrequirepost-marketingtesting,knownasPhaseIVtesting,riskminimizationactionplans,andsurveillancetomonitortheeffectsofanapprovedproductortoplaceconditionsonanapprovalthatrestrictthedistributionoruseoftheproduct.

OutsidetheU.S.,ourandourcollaborators'abilitiestomarketaproductarecontingentuponreceivingmarketingauthorizationfromtheappropriateregulatoryauthorities.Therequirementsgoverningmarketingauthorization,pricingandreimbursementvarywidelyfromjurisdictiontojurisdiction.Atpresent,foreignmarketingauthorizationsareappliedforatanationallevel,althoughwithintheE.U.registrationproceduresareavailabletocompanieswishingtomarketaproductinmorethanoneE.U.memberstate.

Employees

AsofDecember31,2015,wehad474employees.Approximately36werescientistsengagedindiscoveryresearch,136wereinourdrugdevelopmentorganization,204wereinoursalesandcommercialteam,and98wereingeneralandadministrativefunctions.Noneofouremployeesarerepresentedbyalaborunion,andweconsiderouremployeerelationstobegood.

ExecutiveOfficersoftheRegistrant

Thefollowingtablesetsforththename,ageandpositionofeachofourexecutiveofficersasofFebruary12,2016:

Peter M. Hecht hasservedasourchiefexecutiveofficerandadirectorsinceourfoundingin1998.Underhisleadership,IronwoodhasgrownfromninePh.D.scientiststoacommercialbiotechnologycompany.PriortofoundingIronwood,Dr.HechtwasaresearchfellowatWhiteheadInstituteforBiomedicalResearch.Dr.HechtearnedaB.S.inmathematicsandanM.S.inbiologyfromStanfordUniversity,andholdsaPh.D.inmolecularbiologyfromtheUniversityofCaliforniaatBerkeley.

Tom Graney hasservedasourchieffinancialofficerandseniorvicepresidentoffinanceandcorporatestrategysincejoiningusinAugust2014.Priortojoiningourcompany,Mr.Graneyheldanumberofpositionsintheareasofmergersandacquisitions,strategicmarketing,financeandaccountingatJohnson&Johnson,orJ&J,anditsaffiliatessince1994.MostrecentlyMr.Graney

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Name Age PositionPeterM.Hecht,Ph.D. 52 ChiefExecutiveOfficer,DirectorTomGraney 51 ChiefFinancialOfficerandSeniorVicePresident,FinanceandCorporateStrategyMarkG.Currie,Ph.D. 61 SeniorVicePresident,ChiefScientificOfficerandPresidentofR&DHalleyE.Gilbert 46 SeniorVicePresident,ChiefLegalOfficer,andSecretaryThomasA.McCourt 58 SeniorVicePresident,MarketingandSalesandChiefCommercialOfficer

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servedasworldwidevicepresidentoffinanceandchieffinancialofficerofEthicon,agloballeaderinsurgicalmedicaldevices,fromJanuary2010toAugust2014.Priortothat,Mr.GraneywasvicepresidentoffinanceforJ&JGlobalSupplyChainfromAugust2009toJanuary2010,chieffinancialofficerofJ&J'sJanssenPharmaceuticalsfromFebruary2008toAugust2009,andchieffinancialofficerforJ&JGlobalVirology(includingTibotecPharmaceuticals)fromNovember2005toFebruary2008.Acharteredfinancialanalystcharterholder,Mr.GraneyholdsaBachelorofSciencedegreeinaccountingfromtheUniversityofDelawareandanM.B.A.inmarketing,financeandinternationalbusinessfromtheLeonardN.SternSchoolofBusinessatNewYorkUniversity.

Mark G. Currie servesasourseniorvicepresident,chiefscientificofficerandpresidentofresearchanddevelopment,andhasledourresearchanddevelopmenteffortssincejoiningusin2002.PriortojoiningIronwood,Dr.CurriedirectedcardiovascularandcentralnervoussystemdiseaseresearchasvicepresidentofdiscoveryresearchatSepracorInc.Previously,Dr.Currieinitiated,builtandleddiscoverypharmacologyandalsoservedasdirectorofarthritisandinflammationatMonsantoCompany.Dr.CurrieearnedaB.S.inbiologyfromtheUniversityofSouthAlabamaandholdsaPh.D.incellbiologyfromtheBowman-GraySchoolofMedicineofWakeForestUniversity.

Halley E. Gilbert servesasourseniorvicepresident,chieflegalofficer,andsecretaryandhasledourlegalandcompliancefunctionsincejoiningusin2008.Priortojoiningus,Ms.GilbertwasvicepresidentanddeputygeneralcounselatCubistPharmaceuticals,Inc.andcorporatecounselatGenzymeCorp.,andpriortothat,shewasanassociatespecializinginmergersandacquisitionsandsecuritieslawatSkadden,Arps,Slate,Meagher&FlomLLP.Ms.GilbertreceivedherJ.D.fromNorthwesternUniversitySchoolofLawandaB.A.fromTuftsUniversity.

Thomas A. McCourt hasservedasourseniorvicepresidentofmarketingandsalesandchiefcommercialofficersincejoiningIronwoodin2009.PriortojoiningIronwood,Mr.McCourtledtheU.S.brandteamfordenosumabatAmgenInc.fromApril2008toAugust2009.Priortothat,Mr.McCourtwaswithNovartisAGfrom2001to2008,wherehedirectedthelaunchandgrowthofZelnormforthetreatmentofpatientswithIBS-CandCICandheldanumberofseniorcommercialroles,includingvicepresidentofstrategicmarketingandoperations.Mr.McCourtwasalsopartofthefoundingteamatAstraMerckInc.,leadingthedevelopmentofthemedicalaffairsandscienceliaisongroupandthenservingasbrandmanagerforPrilosec™andNEXIUM®.Mr.McCourthasadegreeinpharmacyfromtheUniversityofWisconsin.

AvailableInformation

YoumayobtainfreecopiesofourAnnualReportsonForm10-K,QuarterlyReportsonForm10-QandCurrentReportsonForm8-K,andamendmentstothosereports,assoonasreasonablypracticableaftertheyareelectronicallyfiledorfurnishedtotheSEC,ontheInvestorssectionofourwebsiteatwww.ironwoodpharma.comorbycontactingourInvestorRelationsdepartmentat(617)374-5082.Thecontentsofourwebsitearenotincorporatedbyreferenceintothisreportandyoushouldnotconsiderinformationprovidedonourwebsitetobepartofthisreport.

Item1A.Risk Factors

InadditiontotheotherinformationinthisAnnualReportonForm10-K,anyofthefactorsdescribedbelowcouldsignificantlyandnegativelyaffectourbusiness,financialcondition,resultsofoperationsorprospects.ThetradingpriceofourClassAcommonstockmaydeclineduetotheserisks.

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RisksRelatedtoOurBusinessandIndustry

We are highly dependent on the commercial success of LINZESS in the U.S. for the foreseeable future; we cannot guarantee when, or if, we will attainprofitability or positive cash flows.

Weandourpartner,Allerganplc(togetherwithitsaffiliates),orAllergan(formerlyActavisplc),begansellingLINZESSintheU.S.duringDecember2012.ThecommercialsuccessofLINZESSdependsonanumberoffactors,including:

• theeffectivenessofLINZESSasatreatmentforadultpatientswithIBS-CorCIC;

• thesizeofthetreatablepatientpopulation;

• theeffectivenessofthesales,managedmarketsandmarketingeffortsbyusandAllergan;

• theadoptionofLINZESSbyphysicians,whichdependsonwhetherphysiciansviewitasasafeandeffectivetreatmentforadultpatientswithIBS-CandCIC;

• oursuccessineducatingandactivatingadultIBS-CandCICpatientstoenablethemtomoreeffectivelycommunicatetheirsymptomsandtreatmenthistorytotheirphysicians;

• ourabilitytobothsecureandmaintainadequatereimbursementfor,andoptimizepatientaccessto,LINZESSbyprovidingthirdpartypayerswithastrongvaluepropositionbasedontheexistingburdenofillnessassociatedwithIBS-CandCICandthebenefitsofLINZESS;

• theeffectivenessofourpartners'distributionnetworks;

• theoccurrenceofanysideeffects,adversereactionsormisuse,oranyunfavorablepublicityintheseareas,associatedwithLINZESS;and

• thedevelopmentorcommercializationofcompetingproductsortherapiesforthetreatmentofIBS-CorCIC,ortheirassociatedsymptoms.

OurrevenuesfromthecommercializationofLINZESSaresubjecttothesefactors,andthereforemaybeunpredictablefromquarter-to-quarter.Ultimately,wemaynevergeneratesufficientrevenuesfromLINZESStoreachormaintainprofitabilityforourcompanyortosustainouranticipatedlevelsofoperations.

Linaclotide may cause undesirable side effects or have other properties that could limit its commercial potential.

ThemostcommonlyreportedadversereactioninthePhaseIIIplacebo-controlledtrialsforlinaclotideinIBS-CandCICwasdiarrhea.Severediarrheawasreportedin2%orlessofthelinaclotide-treatedpatients,anditsincidencewassimilarbetweentheIBS-CandCICpopulationsinthesetrials.Ifweorothersidentifypreviouslyunknownsideeffects,ifknownsideeffectsaremorefrequentorseverethaninthepast,ifweorothersdetectunexpectedsafetysignalsforlinaclotideoranyproductsperceivedtobesimilartolinaclotide,orifanyoftheforegoingareperceivedtohaveoccurred,theninanyofthesecircumstances:

• salesoflinaclotidemaybeimpaired;

• regulatoryapprovalsforlinaclotidemaybedenied,restrictedorwithdrawn;

• wemaydecideto,orberequiredto,sendproductwarninglettersorfieldalertstophysicians,pharmacistsandhospitals;

• reformulationoftheproduct,additionalnonclinicalorclinicalstudies,changesinlabelingorchangestoorreapprovalsofmanufacturingfacilitiesmayberequired;

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• wemaybeprecludedfrompursuingadditionaldevelopmentopportunitiestoenhancetheclinicalprofileofLINZESSwithinitsindicatedpopulations,aswellasbeprecludedfromstudyinglinaclotideinadditionalindications,populationsandformulations;

• ourreputationinthemarketplacemaysuffer;and

• governmentinvestigationsorlawsuits,includingclassactionsuits,maybebroughtagainstus.

Anyoftheaboveoccurrenceswouldharmorpreventsalesoflinaclotide,increaseourexpensesandimpairourabilitytosuccessfullycommercializelinaclotide.

Furthermore,withLINZESSandCONSTELLAcommerciallyavailableincertaincountriesandusedinwiderpopulationsandinlessrigorouslycontrolledenvironmentsthaninclinicalstudies,andasweandAllerganexploredevelopmentopportunitiestoenhancetheclinicalprofileofLINZESSthroughadditionalclinicaltrials,thenumberofpatientstreatedwithlinaclotidewithinandoutsideofitscurrentindicationsorpatientpopulationsmayexpand,whichcouldresultintheidentificationofpreviouslyunknownsideeffects,increasedfrequencyorseverityofknownsideeffects,ordetectionofunexpectedsafetysignals.Asaresult,regulatoryauthorities,healthcarepractitioners,thirdpartypayersorpatientsmayperceiveorconcludethattheuseoflinaclotideisassociatedwithseriousadverseeffects,underminingourcommercializationefforts.

Inaddition,theFDA-approvedlabelforLINZESScontainsaboxedwarningaboutitsuseinpediatricpatients.LINZESSiscontraindicatedinpediatricpatientsupto6yearsofagebasedonnonclinicaldatafromstudiesinneonatalmiceapproximatelyequivalenttohumanpediatricpatientslessthan2yearsofage.ThereisalsoawarningadvisingphysicianstoavoidtheuseofLINZESSinpediatricpatients6through17yearsofage.Thiswarningisbasedondatainyoungjuvenilemiceandthelackofclinicalsafetyandefficacydatainpediatricpatientsofanyagegroup.WeandAllerganhaveestablishedanonclinicalandclinicalpost-marketingplanwiththeFDAtounderstandthesafetyandefficacyofLINZESSinpediatricpatients,whichisdiscussedbelow.

We rely entirely on contract manufacturers and our collaboration partners to manufacture and distribute linaclotide. If they are unable to comply withapplicable regulatory requirements, unable to source sufficient raw materials, experience manufacturing or distribution difficulties, or are otherwise unable tomanufacture and distribute sufficient quantities to meet demand, our commercialization efforts may be materially harmed.

Wehavenointernalmanufacturingordistributioncapabilities.Instead,werelyonacombinationofcontractmanufacturersandourpartnerstomanufacturelinaclotideAPIandfinallinaclotidedrugproduct,andtodistributethatdrugproducttothirdpartypurchasers.WeandcertainofourpartnershavecommercialsupplyagreementswithindependentthirdpartiestomanufacturethelinaclotideAPIusedtosupportallofourpartneredandunpartneredterritories.EachofAllerganandAstellasisresponsiblefordrugproductandfinishedgoodsmanufacturing(includingbottlingandpackaging)foritsrespectiveterritories,anddistributingthefinishedgoodstowholesalers.Amongourdrugproductmanufacturers,onlyAllerganhasmanufacturedlinaclotideonacommercialscale.Wehaveanagreementwithanindependentthirdpartytoserveasanadditionalsourceofdrugproductmanufacturingoflinaclotideforourpartneredterritoriesandwehaveworkedwithourpartnerstoachievesufficientredundancyinthiscomponentofthelinaclotidesupplychain.UnderourcollaborationwithAstraZeneca,weareaccountablefordrugproductandfinishedgoodsmanufacturingforChina,HongKongandMacau.

EachofourlinaclotideAPIanddrugproductmanufacturersmustcomplywithcurrentgoodmanufacturingpractices,orGMP,andotherstringentregulatoryrequirementsenforcedbytheFDAandforeignregulatoryauthoritiesinotherjurisdictions.Theserequirementsinclude,amongotherthings,qualitycontrol,qualityassuranceandthemaintenanceofrecordsanddocumentation,whichoccurinadditiontoourqualityassurancereleaseoflinaclotideAPI.Manufacturersoflinaclotidemay

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beunabletocomplywiththeseGMPrequirementsandwithotherregulatoryrequirements.Wehavelittlecontroloverourmanufacturers'orcollaborationpartners'compliancewiththeseregulationsandstandards.

Ourmanufacturersmayexperienceproblemswiththeirrespectivemanufacturinganddistributionoperationsandprocesses,includingforexample,qualityissues,includingproductspecificationandstabilityfailures,proceduraldeviations,improperequipmentinstallationoroperation,utilityfailures,contaminationandnaturaldisasters.Inaddition,ourAPImanufacturersacquiretherawmaterialsnecessarytomakelinaclotideAPIfromalimitednumberofsources.Anydelayordisruptionintheavailabilityoftheserawmaterialsorachangeinrawmaterialsupplierscouldresultinproductiondisruptions,delaysorhighercostswithconsequentadverseeffectsonus.

Themanufactureofpharmaceuticalproductsrequiressignificantexpertiseandcapitalinvestment,includingthedevelopmentofadvancedmanufacturingtechniquesandprocesscontrols.Manufacturersofpharmaceuticalproductsoftenencounterdifficultiesincommercialproduction.Theseproblemsincludedifficultieswithproductioncostsandyields,qualitycontrol,includingstabilityoftheproductandqualityassurancetesting,andshortagesofqualifiedpersonnel,aswellascompliancewithfederal,stateandforeignregulationsandthechallengesassociatedwithcomplexsupplychainmanagement.Evenifourmanufacturersdonotexperienceproblemsandcommercialmanufacturingisachieved,theirmaximumoravailablemanufacturingcapacitiesmaybeinsufficienttomeetcommercialdemand.Findingalternativemanufacturersoraddingadditionalmanufacturersrequiresasignificantamountoftimeandinvolvessignificantexpense.Newmanufacturerswouldneedtodevelopandimplementthenecessaryproductiontechniquesandprocesses,whichalongwiththeirfacilities,wouldneedtobeinspectedandapprovedbytheregulatoryauthoritiesineachapplicableterritory.

IfourAPIordrugproductmanufacturersfailtoadheretoapplicableGMPorotherregulatoryrequirements,experiencedelaysordisruptionsintheavailabilityofrawmaterialsorexperiencemanufacturingordistributionproblems,wewillsuffersignificantconsequences,includingproductseizuresorrecalls,lossofproductapproval,finesandsanctions,reputationaldamage,shipmentdelays,inventoryshortages,inventorywrite-offsandotherproduct-relatedchargesandincreasedmanufacturingcosts.Ifweexperienceanyoftheseresults,orifourmanufacturers'maximumoravailablecapacitiesareinsufficienttomeetdemand,wemaynotbeabletosuccessfullycommercializelinaclotide.

If any of our partners undergoes a change in control or in management, this may adversely affect our collaborative relationship or the success of thecommercialization of LINZESS in the U.S. or the continued launches and commercialization of CONSTELLA in the E.U., or the ability to achieve regulatoryapproval, launch and commercialize linaclotide in our other partnered territories.

Weworkjointlyandcollaborativelywitheachofourpartnersonmanyaspectsofthedevelopment,manufacturingandcommercializationoflinaclotide.Indoingso,wehaveestablishedrelationshipswithseveralkeymembersofthemanagementteamsofourlinaclotidepartnersinfunctionalareassuchasdevelopment,quality,regulatory,drugsafetyandpharmacovigilance,operations,marketing,sales,fieldoperationsandmedicalscience.Further,thesuccessofourcollaborationsishighlydependentontheresources,effortsandskillsofourpartnersandtheirkeyemployees.AsweandourpartnerscommercializeLINZESSintheU.S.,continuetolaunchandcommercializeCONSTELLAintheE.U.anddevelop,launchandcommercializelinaclotideinotherpartsoftheworld,thedrug'ssuccessbecomesmoredependentonusmaintaininghighlycollaborativeandwellalignedpartnerships.InNovember2015,AllerganandPfizerInc.enteredintoadefinitiveagreementprovidingforthecombinationofthetwocompanies.Ifthetransactioniscompleted,orifourpartnersotherwiseundergoachangeofcontrolorinmanagement,wewillneedtoreestablishmanyrelationshipsandconfirmcontinuedalignmentonourdevelopmentandcommercializationstrategyforlinaclotide.Further,inconnectionwithanychangeofcontrolorinmanagement,thereisinherentuncertaintyanddisruptioninoperations,whichcouldresultindistraction,inefficiencies,andmisalignmentofpriorities.

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Asaresult,intheeventofachangeofcontrolorinmanagementatoneofourpartners,wecannotbesurethatwewillbeabletosuccessfullyexecuteonourdevelopmentandcommercializationstrategyforlinaclotideinaneffectiveandefficientmannerandwithoutdisruptionorreducedperformance.Finally,anychangeofcontrolorinmanagementmayresultinareprioritizationoflinaclotidewithinapartner'sportfolio,orsuchpartnermayfailtomaintainthefinancialorotherresourcesnecessarytocontinuesupportingitsportionofthedevelopment,manufacturingorcommercializationoflinaclotide.

Ifanyofourpartnersundergoesachangeofcontrolandtheacquirereitherisunabletoperformsuchpartner'sobligationsunderitscollaborationorlicenseagreementwithusorhasaproductthatcompeteswithlinaclotidethatsuchacquirerdoesnotdivest,wehavetherighttoterminatethecollaborationorlicenseagreementandreacquirethatpartner'srightswithrespecttolinaclotide.Ifweelecttoexercisetheserightsinsuchcircumstances,wewillneedtoeitherestablishthecapabilitytodevelop,manufactureandcommercializelinaclotideinthatpartneredterritoryonourownorwewillneedtoestablisharelationshipwithanewpartner.Wehaveassembledateamofspecialistsinmanufacturing,quality,sales,marketing,payer,pricingandfieldoperations,andspecializedmedicalscientists,whorepresentthefunctionalareasnecessaryforasuccessfulcommerciallaunchofahighpotential,GItherapyandwhosupportthecommercializationofLINZESSintheU.S.IfAllerganwassubjecttoachangeofcontrolthatallowedustofurthercommercializeLINZESSintheU.S.onourown,andwechosetodoso,wewouldneedtoenhanceeachofthesefunctionalaspectstoreplacethecapabilitiesthatAllerganwaspreviouslyprovidingtothecollaboration.Anysuchtransitionmightresultinaperiodofreducedefficiencyorperformancebyouroperationsandcommercializationteams,whichcouldadverselyaffectourabilitytocommercializeLINZESS.

Althoughmanymembersofourglobaloperations,commercialandmedicalaffairsteamshavestrategicoversightof,andacertainlevelofinvolvementin,theirfunctionalareasglobally,wedonothavecorrespondingoperationalcapabilitiesintheseareasoutsideoftheU.S.IfAllergan,AstellasorAstraZenecawassubjecttoachangeofcontrolthatallowedustocontinuelinaclotide'sdevelopmentorcommercializationanywhereoutsideoftheU.S.onourown,andwechosetodosoratherthanestablishingarelationshipwithanewpartner,wewouldneedtobuildoperationalcapabilitiesintherelevantterritory.Inanyofthesesituations,thetimelineandlikelihoodofachievingregulatoryapprovaland,ultimately,thecommercializationoflinaclotidecouldbenegativelyimpacted.

We must work effectively and collaboratively with Allergan to market and sell LINZESS in the U.S. in order for it to achieve its maximum commercialpotential.

WeareworkingcloselywithAllergantoimplementourjointcommercializationplanforLINZESS.ThecommercializationplanincludesanagreeduponmarketingcampaignthattargetsthephysicianswhoseepatientswhocouldbenefitfromLINZESStreatment.OurmarketingcampaignalsotargetstheadultmenandwomenwhosufferfromIBS-CorCIC.OurcommercializationplanalsoincludesanintegratedcallplanforoursalesforcestooptimizetheeducationofspecificgastroenterologistsandprimarycarephysiciansonwhomourandAllergan'ssalesrepresentativescall,andthefrequencywithwhichtherepresentativesmeetwiththem.

InordertooptimizethecommercialpotentialofLINZESS,weandAllerganmustexecuteuponthiscommercializationplaneffectivelyandefficiently.Inaddition,weandAllerganmustcontinuallyassessandmodifyourcommercializationplaninacoordinatedandintegratedfashioninordertoadapttothepromotionalresponse.Further,weandAllerganmustcontinuetofocusandrefineourmarketingcampaigntoensureaclearandunderstandablephysician-patientdialoguearoundIBS-C,CICandthepotentialforLINZESSasanappropriatetherapy.Inaddition,weandAllerganmustprovideoursalesforceswiththehighestqualitysupport,guidanceandoversightinorderforthemtocontinuetoeffectivelypromoteLINZESStogastroenterologistsandprimarycarephysicians.IfweandAllerganfailtoperformthesecommercialfunctionsinthehighestqualitymannerandinaccordancewithourjointcommercializationplanandrelatedagreements,LINZESSwillnotachieveitsmaximum

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commercialpotentialandwemaysufferfinancialharm.OureffortstofurthertargetandengageadultpatientswithIBS-CorCICmaynoteffectivelyincreaseappropriatepatientawarenessorpatient/physiciandialogue,andmaynotincreasetherevenuesthatwegeneratefromLINZESS.

We are subject to uncertainty relating to pricing and reimbursement policies which, if not favorable for linaclotide, could hinder or prevent linaclotide'scommercial success.

OurandAllergan'sabilitytocommercializeLINZESSintheU.S.successfullydependsinpartonthecoverageandreimbursementlevelssetbygovernmentalauthorities,privatehealthinsurersandotherthird-partypayers.IndeterminingwhethertoapprovereimbursementforLINZESSandatwhatlevel,weexpectthatthird-partypayerswillconsiderfactorsthatincludetheefficacy,costeffectivenessandsafetyofLINZESS,aswellastheavailabilityofothertreatmentsincludinggenericprescriptiondrugsandover-the-counteralternatives.Further,inordertomaintainacceptablereimbursementlevelsandaccessforpatientsatcopaylevelsthatarereasonableandcustomary,wemayfaceincreasingpressuretoofferdiscountsorrebatesfromlistpricesordiscountstoagreaternumberofthird-partypayersorotherunfavorablepricingmodifications.Obtainingandmaintainingfavorablereimbursementcanbeatimeconsumingandexpensiveprocess,andthereisnoguaranteethatweorAllerganwillbeabletocontinuetonegotiatepricingtermswiththird-partypayersatlevelsthatareprofitabletous,oratall.Certainthird-partypayersalsorequirepriorauthorizationfor,orevenrefusetoprovide,reimbursementforLINZESS,andothersmaydosointhefuture.OurbusinesswouldbemateriallyadverselyaffectedifweandAllerganarenotabletoreceiveapprovalforreimbursementofLINZESSfromthird-partypayersonabroad,timelyorsatisfactorybasis;ifreimbursementissubjecttooverlybroadorrestrictivepriorauthorizationrequirements;orifreimbursementisnotmaintainedatasatisfactorylevelorbecomessubjecttopriorauthorization.Inaddition,ourbusinesscouldbeadverselyaffectedifprivatehealthinsurers,includingmanagedcareorganizations,theMedicareorMedicaidprogramsorotherreimbursingbodiesorpayerslimitorreducetheindicationsfororconditionsunderwhichLINZESSmaybereimbursed.

Weexpecttoexperiencepricingpressuresinconnectionwiththesaleoflinaclotideandourfutureproductsduetothehealthcarereformsdiscussedbelow,aswellasthetrendtowardprogramsaimedatreducinghealthcarecosts,theincreasinginfluenceofmanagedcare,theongoingdebatesonreducinggovernmentspendingandadditionallegislativeproposals.Thesehealthcarereformeffortsoranyfuturelegislationorregulatoryactionsaimedatcontrollingandreducinghealthcarecosts,includingthroughmeasuresdesignedtolimitreimbursement,restrictaccessorimposeunfavorablepricingmodificationsonpharmaceuticalproducts,couldimpactourandourpartners'abilitytoobtainormaintainreimbursementforLINZESSatasatisfactorylevel,oratall,whichcouldmateriallyharmourbusinessandfinancialresults.

Insomeforeigncountries,particularlyCanadaandthecountriesofEurope,thepricingandpaymentofprescriptionpharmaceuticalsissubjecttogovernmentalcontrol.Inthesecountries,pricingnegotiationswithgovernmentalauthoritiescantakesixto12monthsorlongerafterthereceiptofregulatoryapprovalandproductlaunch.Toobtainfavorablereimbursementfortheindicationssoughtorpricingapprovalinsomecountries,weandourpartnersmayberequiredtoconductaclinicaltrialthatcomparesthecost-effectivenessofourproducts,includinglinaclotide,tootheravailabletherapies.Inaddition,incountriesinwhichlinaclotideistheonlyapprovedtherapyforaparticularindication,suchasCONSTELLAastheonlyproductapprovedforthesymptomatictreatmentofmoderatetosevereIBS-CinadultsinEurope,theremaybedisagreementastowhatthemostcomparableproductis,orifthereevenisone.Further,severalEuropeancountrieshaveimplementedgovernmentmeasurestoeitherfreezeorreducepricingofpharmaceuticalproducts.Manythird-partypayersandgovernmentalauthoritiesalsoconsiderthepriceforwhichthesameproductisbeingsoldinothercountriestodeterminetheirownpricingandreimbursementstrategy,soiflinaclotideispricedloworgetslimitedreimbursementinaparticularcountry,thiscouldresultinsimilarlylowpricingand

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reimbursementinothercountries.Ifreimbursementforourproductsisunavailableinanycountryinwhichreimbursementissought,limitedinscopeoramount,orifpricingissetatorreducedtounsatisfactorylevels,ourabilitytosuccessfullycommercializelinaclotideinsuchcountrywouldbeimpactednegatively.Furthermore,ifthesemeasurespreventusoranyofourpartnersfromsellinglinaclotideonaprofitablebasisinaparticularcountry,theycouldpreventthecommerciallaunchorcontinuedsaleoflinaclotideinthatcountry.

If the pricing and reimbursement of CONSTELLA in the E.U. is low, our royalty revenues based on sales of linaclotide will be adversely affected.

Inthesecondquarterof2013,ourformerEuropeanpartnerAlmirallbegancommercializingCONSTELLAinEuropeforthesymptomatictreatmentofmoderatetosevereIBS-Cinadults.InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan.Currently,CONSTELLAiscommerciallyavailableincertainEuropeancountries,includingtheUnitedKingdom,ItalyandSpain.

ThepricingandreimbursementstrategyisakeycomponentofAllergan'scommercializationplanforCONSTELLAinEurope.Reimbursementsourcesaredifferentineachcountry,andeachcountrymayincludeacombinationofdistinctpotentialpayers,includingprivateinsuranceandgovernmentalpayers.CountriesinEuropemayrestricttherangeofmedicinalproductsforwhichtheirnationalhealthinsurancesystemsprovidereimbursementandcontrolthepricesofmedicinalproductsforhumanuse.OurrevenuesmaysufferifAllerganisunabletosuccessfullyandtimelyconcludereimbursement,priceapprovalorfundingprocessesandmarketCONSTELLAinkeymemberstatesoftheE.U.,orifcoverageandreimbursementforCONSTELLAislimitedorreduced.IfAllerganisnotabletoobtaincoverage,pricingorreimbursementonacceptabletermsoratall,orifsuchtermschangeinanycountriesinitsterritory,Allerganmaynotbeableto,ormaydecidenotto,sellCONSTELLAinsuchcountries.Further,AllergancouldsellCONSTELLAatalowprice.SincewereceiveroyaltiesonnetsalesofCONSTELLAintheE.U.,whichiscorrelateddirectlytothepriceatwhichAllergansellsCONSTELLAintheE.U.,ourroyaltyrevenuesgloballycouldbelimitedshouldAllergansellCONSTELLAatalowpriceorelectnottolaunchinacertaincountrywithintheE.U.

Because we work with partners to develop, manufacture and commercialize linaclotide, we are dependent upon third parties, and our relationships with thosethird parties, in our efforts to commercialize LINZESS and to obtain regulatory approval for, and to commercialize, linaclotide in our other partneredterritories.

Allerganplayedasignificantroleintheconductoftheclinicaltrialsforlinaclotideandinthesubsequentcollectionandanalysisofdata,andAllerganholdstheNDAforLINZESS.Inaddition,wearecommercializingLINZESSintheU.S.withAllergan.Allerganisalsoresponsibleforthedevelopment,regulatoryapprovalandcommercializationoflinaclotideinCanadaandMexico,which,forMexico,ithadsublicenseditscommercializationrightstoAlmirall.InOctober2015,inconnectionwiththetransferoftheexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,AlmirallandAllerganterminatedthesublicensearrangementwithrespecttoMexico,returningtheexclusiverightstocommercializelinaclotideinMexicotoAllergan.Asaresult,AllerganisalsocommercializingLINZESSinMexicoandCONSTELLAinCanada,aswellascommercializingCONSTELLAincertaincountriesinEurope,withresponsibilityforobtainingregulatoryapprovaloflinaclotideintheothercountriesinitsterritory.Astellas,ourpartnerinJapan,isresponsibleforcompletingtheclinicalprogramsandobtainingregulatoryapprovaloflinaclotideinitsterritory.Further,wearejointlyoverseeingthedevelopment,andwilljointlyoverseethecommercialization,oflinaclotideinChina,HongKongandMacauthroughourcollaborationwithAstraZeneca,withAstraZenecahavingprimaryresponsibilityforthelocaloperationalexecution.Uponanyapproval,eachofAstellasandAstraZeneca,aswellasAllerganfortheEuropeanregion,isresponsibleforcommercializinglinaclotideinitsrespectiveterritory,andeachhasagreedtousecommercially

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reasonableeffortstodoso.Eachofourpartnersisresponsibleforreportingadverseeventinformationfromitsterritorytous.Finally,eachofourpartners,otherthanAstraZeneca,isresponsiblefordrugproductmanufacturingoflinaclotideandmakingitintofinishedgoods(includingbottlingandpackaging)foritsrespectiveterritory.Theintegrationofoureffortswithourpartners'effortsissubjecttotheuncertaintyofthemarketsforpharmaceuticalproductsineachpartner'srespectiveterritories,andaccordingly,theserelationshipsmustevolvetomeetanynewchallengesthatariseinthoseregions.

Theseintegratedfunctionsmaynotbecarriedouteffectivelyandefficientlyifwefailtocommunicateandcoordinatewithourpartners,andviceversa.Ourpartneringstrategyimposesobligations,risksandoperationalrequirementsonusasthecentralnodeinourglobalnetworkofpartners.Ifwedonoteffectivelycommunicatewitheachpartnerandensurethattheentirenetworkismakingintegratedandcohesivedecisionsfocusedontheglobalbrandforlinaclotide,linaclotidewillnotachieveitsmaximumcommercialpotential.Astheholderoftheglobalsafetydatabaseforlinaclotide,weareresponsibleforcoordinatingthesafetysurveillanceandadverseeventreportingeffortsworldwide.Ifweareunsuccessfulindoingsoduetopoorprocess,execution,oversight,communication,adjudicationorotherwise,thenourandourpartner'sabilitytoobtainandmaintainregulatoryapprovaloflinaclotidewillbeatrisk.

Wehavelimitedabilitytocontroltheamountortimingofresourcesthatourpartnersdevotetolinaclotide.Ifanyofourpartnersfailstodevotesufficienttimeandresourcestolinaclotide,orifitsperformanceissubstandard,itwilldelaythepotentialsubmissionorapprovalofregulatoryapplicationsforlinaclotide,aswellasthemanufacturingandcommercializationoflinaclotideintheparticularterritory.Amaterialbreachbyanyofourpartnersofourcollaborationorlicenseagreementwithsuchpartner,orasignificantdisagreementbetweenusandapartner,couldalsodelaytheregulatoryapprovalandcommercializationoflinaclotide,potentiallyleadtocostlylitigation,andcouldhaveamaterialadverseimpactonourfinancialcondition.Moreover,althoughwehavenon-competerestrictionsinplacewitheachofourpartners,theymayhaverelationshipswithothercommercialentities,someofwhichmaycompetewithus.Ifanyofourpartnersassistsourcompetitors,itcouldharmourcompetitiveposition.

Even though LINZESS is approved by the FDA for the treatment of adults with IBS-C or CIC, it faces post-approval development and regulatory requirements,which will present additional challenges.

InAugust2012,theFDAapprovedLINZESSasaonce-dailytreatmentforadultmenandwomensufferingfromIBS-CorCIC.LINZESSissubjecttoongoingFDArequirementsgoverningthelabeling,packaging,storage,advertising,promotion,recordkeepingandsubmissionofsafetyandotherpost-marketinformation.

LINZESSiscontraindicatedinpediatricpatientsupto6yearsofagebasedonnonclinicaldatafromstudiesinneonatalmiceapproximatelyequivalenttohumanpediatricpatientslessthan2yearsofage.ThereisalsoawarningadvisingphysicianstoavoidtheuseofLINZESSinpediatricpatients6through17yearsofage.Thiswarningisbasedondatainyoungjuvenilemiceandthelackofclinicalsafetyandefficacydatainpediatricpatientsofanyagegroup.WeandAllerganhaveestablishedanonclinicalandclinicalpost-marketingplanwiththeFDAtounderstandthesafetyandefficacyofLINZESSinpediatricpatients.ThefirststepinthisplanwastoundertakeadditionalnonclinicalstudiestofurtherunderstandtheresultsoftheearlierneonatalmousestudyandtounderstandthetolerabilityofLINZESSinolderjuvenilemice.WeandAllerganhavecompletedthesenonclinicalstudiesandhaveinitiatedtwoPhaseIIclinicalpediatricstudiesinIBS-Cpatientsagesevento17andfunctionalconstipationpatientsagesixto17.Ourabilitytoconductclinicalstudiesinyoungerpediatricpatientswilldepend,inpart,onthesafetyandefficacydatafromourclinicalstudiesinolderpediatricpatients.OurabilitytoeverexpandtheindicationforLINZESStopediatricswilldependon,amongotherthings,oursuccessfulcompletionofpediatricclinicalstudies.

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WeandAllerganhavealsocommittedtocertainnonclinicalandclinicalstudiesaimedatunderstanding:(a)whetherorallyadministeredlinaclotidecanbedetectedinbreastmilk,(b)thepotentialforantibodiestobedevelopedtolinaclotide,andifso,(c)whetherantibodiesspecificforlinaclotidecouldhaveanytherapeuticorsafetyimplications.Weexpecttocompletethesestudiesoverthenexttwotofouryears.

Thesepost-approvalrequirementsimposeburdensandcostsonus.Failuretocompletetherequiredstudiesandmeetourotherpost-approvalcommitmentswouldleadtonegativeregulatoryactionattheFDA,whichcouldincludewithdrawalofregulatoryapprovalofLINZESSforthetreatmentofadultswithIBS-CorCIC.

ManufacturersofdrugproductsandtheirfacilitiesaresubjecttocontinualreviewandperiodicinspectionsbytheFDAandotherregulatoryauthoritiesforcompliancewithGMPregulations.Ifweoraregulatoryagencydiscoverspreviouslyunknownproblemswithaproduct,suchasadverseeventsofunanticipatedseverityorfrequency,orproblemswithafacilitywheretheproductismanufactured,aregulatoryagencymayimposerestrictionsonthatproductorthemanufacturer,includingrequiringimplementationofariskevaluationandmitigationstrategyprogram,withdrawaloftheproductfromthemarketorsuspensionofmanufacturing.Ifwe,ourpartnersorthemanufacturingfacilitiesforlinaclotidefailtocomplywithapplicableregulatoryrequirements,aregulatoryagencymay:

• issuewarninglettersoruntitledletters;

• imposecivilorcriminalpenalties;

• suspendorwithdrawregulatoryapproval;

• suspendanyongoingclinicaltrials;

• refusetoapprovependingapplicationsorsupplementstoapplicationssubmittedbyus;

• imposerestrictionsonoperations,includingcostlynewmanufacturingrequirements;or

• seizeordetainproductsorrequireustoinitiateaproductrecall.

Even though linaclotide is approved for marketing in the U.S. as LINZESS and in the E.U. as CONSTELLA, and is approved for marketing in a number ofother countries, we or our collaborators may never receive approval to commercialize linaclotide in additional parts of the world.

Inordertomarketanyproductsoutsideofthecountrieswherelinaclotideisapproved,weorourpartnersmustcomplywithnumerousandvaryingregulatoryrequirementsofotherjurisdictionsregardingsafetyandefficacy.Approvalproceduresvaryamongjurisdictionsandcaninvolveproducttestingandadministrativereviewperiodsdifferentfrom,andgreaterthan,thoseintheU.S.,theE.U.andtheothercountrieswherelinaclotideisapproved.Potentialrisksincludethattheregulatoryauthorities:

• maynotdeemlinaclotidesafeandeffective;

• maynotfindthedatafromnonclinicalstudiesandclinicaltrialssufficienttosupportapproval;

• maynotapproveofmanufacturingprocessesandfacilities;

• maynotapprovelinaclotideforanyorallindicationsorpatientpopulationsforwhichapprovalissought;

• mayrequiresignificantwarningsorrestrictionsonusetotheproductlabelforlinaclotide;or

• maychangetheirapprovalpoliciesoradoptnewregulations.

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Ifanyoftheforegoingweretooccur,ourreceiptofregulatoryapprovalintheapplicablejurisdictioncouldbedelayedorwemayneverreceiveapprovalatall.Further,regulatoryapprovalinonejurisdictiondoesnotensureregulatoryapprovalinanother,butafailureordelayinobtainingregulatoryapprovalinonejurisdictionmayhaveanegativeeffectontheregulatoryprocessesinothers.Iflinaclotideisnotapprovedforallindicationsorpatientpopulationsorwiththelabelrequested,thiswouldlimittheusesoflinaclotideandhaveanadverseeffectonitscommercialpotentialorrequirecostlypost-marketingstudies.

We face potential product liability exposure, and, if claims brought against us are successful, we could incur substantial liabilities.

Theuseofourproductcandidatesinclinicaltrialsandthesaleofmarketedproductsexposeustoproductliabilityclaims.Ifwedonotsuccessfullydefendourselvesagainstproductliabilityclaims,wecouldincursubstantialliabilities.Inaddition,regardlessofmeritoreventualoutcome,productliabilityclaimsmayresultin:

• decreaseddemandforapprovedproducts;

• impairmentofourbusinessreputation;

• withdrawalofclinicaltrialparticipants;

• initiationofinvestigationsbyregulators;

• litigationcosts;

• distractionofmanagement'sattentionfromourprimarybusiness;

• substantialmonetaryawardstopatientsorotherclaimants;

• lossofrevenues;and

• theinabilitytocommercializeourproductcandidates.

Wecurrentlyhaveproductliabilityinsurancecoverageforthecommercialsaleoflinaclotideandfortheclinicaltrialsofourproductcandidateswhichissubjecttoindustry-standardterms,conditionsandexclusions.Ourinsurancecoveragemaynotbesufficienttoreimburseusforexpensesorlossesassociatedwithclaims.Moreover,insurancecoverageisbecomingincreasinglyexpensive,and,inthefuture,wemaynotbeabletomaintaininsurancecoverageatareasonablecostorinsufficientamountstoprotectusagainstlosses.Onoccasion,largejudgmentshavebeenawardedinlawsuitsbasedondrugsthathadunanticipatedsideeffects.Asuccessfulproductliabilityclaimorseriesofclaimscouldcauseourstockpricetodeclineand,ifjudgmentsexceedourinsurancecoverage,coulddecreaseourcashandadverselyaffectourbusiness.

We may face competition in the IBS-C and CIC marketplace, and new products may emerge that provide different or better alternatives for treatment of GIconditions.

Linaclotidecompetesgloballywithcertainprescriptiontherapiesandover-the-counterproductsforthetreatmentofIBS-CandCIC,ortheirassociatedsymptoms.Theavailabilityofprescriptioncompetitorsandover-the-counterproductsforGIconditionscouldlimitthedemand,andthepriceweareabletocharge,forlinaclotideunlessweareabletodifferentiatelinaclotideonthebasisofitsactualorperceivedbenefits.Newdevelopments,includingthedevelopmentofotherdrugtechnologiesandmethodsofpreventingtheincidenceofdisease,occurinthepharmaceuticalandmedicaltechnologyindustriesatarapidpace.Thesedevelopmentsmayrenderlinaclotideobsoleteornoncompetitive.

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Webelieveothercompaniesaredevelopingproductswhichcouldcompetewithlinaclotide,shouldtheybeapprovedbytheFDAorforeignregulatoryauthorities.Currently,therearecompoundsinlatestagedevelopmentandotherpotentialcompetitorsareinearlierstagesofdevelopmentforthetreatmentofpatientswitheitherIBS-CorCIC.IfourpotentialcompetitorsaresuccessfulincompletingdrugdevelopmentfortheirdrugcandidatesandobtainapprovalfromtheFDAorforeignregulatoryauthorities,theycouldlimitthedemandforlinaclotide.

Inaddition,certainofourcompetitorshavesubstantiallygreaterfinancial,technicalandhumanresourcesthanus.Mergersandacquisitionsinthepharmaceuticalindustrymayresultinevenmoreresourcesbeingconcentratedinourcompetitors.Competitionmayincreasefurtherasaresultofadvancesmadeinthecommercialapplicabilityoftechnologiesandgreateravailabilityofcapitalforinvestmentinthesefields.

We will incur significant liability if it is determined that we are promoting any "off-label" use of LINZESS or any other product.

Physiciansarepermittedtoprescribedrugproductsandmedicaldevicesforusesthatarenotdescribedintheproduct'slabelingandthatdifferfromthoseapprovedbytheFDAorotherapplicableregulatoryagencies.Such"off-label"usesarecommonacrossmedicalspecialties.AlthoughtheFDAandotherregulatoryagenciesdonotregulateaphysician'schoiceoftreatments,theFDAandotherregulatoryagenciesdorestrictcommunicationsonthesubjectofoff-labeluse.Companiesarenotpermittedtopromotedrugsormedicaldevicesforoff-labeluses.Accordingly,wedonotpermitpromotionofLINZESSintheU.S.foruseinanyindicationsotherthanIBS-CorCICorinanypatientpopulationsotherthanadultmenandwomen.Similarly,wedonotpermitpromotionofanyotherapprovedproductwedevelop,license,co-promoteorotherwisepartnerforanyindication,populationorusenotdescribedinsuchproduct'slabel.TheFDAandotherregulatoryandenforcementauthoritiesactivelyenforcelawsandregulationsprohibitingpromotionofoff-labelusesandthepromotionofproductsforwhichmarketingapprovalhasnotbeenobtained.Acompanythatisfoundtohavepromotedoff-labeluseswillbesubjecttosignificantliability,includingcivilandadministrativeremediesaswellascriminalsanctions.

Notwithstandingtheregulatoryrestrictionsonoff-labelpromotion,theFDAandotherregulatoryauthoritiesallowcompaniestoengageintruthful,non-misleading,andnon-promotionalscientificexchangeconcerningtheirproducts.Weintendtoengageinmedicaleducationactivitiesandcommunicatewithhealthcareprovidersincompliancewithallapplicablelaws,regulatoryguidanceandindustrybestpractices.Althoughwebelievewehaveputinplacearobustcomplianceprogram,whichisdesignedtoensurethatallsuchactivitiesareperformedinalegalandcompliantmanner,wecannotbecertainthatourprogramwilladdressallareasofpotentialexposureandtherisksinthisareacannotbeentirelyeliminated.

If we fail to comply with healthcare and other regulations, we could face substantial penalties and our business, operations and financial condition could beadversely affected.

LINZESSandtheotherproductsthatwepromotearemarketedintheU.S.and/orcoveredbyfederalhealthcareprograms,and,asaresult,certainfederalandstatehealthcarelawsandregulationspertainingtoproductpromotionandfraudandabuseareapplicableto,andmayaffect,ourbusiness.Theselawsandregulationsinclude:

• federalhealthcareprogramanti-kickbacklaws,whichprohibit,amongotherthings,personsfromsoliciting,receivingorprovidingremuneration,directlyorindirectly,toinduceeitherthereferralofanindividual,foranitemorserviceorthepurchasingororderingofagoodorservice,forwhichpaymentmaybemadeunderfederalhealthcareprogramssuchasMedicareandMedicaid;

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• federalfalseclaimslawswhichprohibit,amongotherthings,individualsorentitiesfromknowinglypresenting,orcausingtobepresented,informationorclaimsforpaymentfromMedicare,Medicaid,orotherthird-partypayersthatarefalseorfraudulent,andwhichmayapplytousforreasonsincludingprovidingcodingandbillingadvicetocustomers;

• thefederalHealthInsurancePortabilityandAccountabilityActof1996,whichprohibitsexecutingaschemetodefraudanyhealthcarebenefitprogramormakingfalsestatementsrelatingtohealthcaremattersandwhichalsoimposescertainrequirementsrelatingtotheprivacy,securityandtransmissionofindividuallyidentifiablehealthinformation;

• theFederalFood,Drug,andCosmeticAct,whichamongotherthings,strictlyregulatesdrugproductandmedicaldevicemarketing,prohibitsmanufacturersfrommarketingsuchproductsforoff-labeluseandregulatesthedistributionofsamples;

• federallawsthatrequirepharmaceuticalmanufacturerstoreportcertaincalculatedproductpricestothegovernmentorprovidecertaindiscountsorrebatestogovernmentauthoritiesorprivateentities,oftenasaconditionofreimbursementundergovernmenthealthcareprograms;

• theso-called"federalsunshine"law,whichrequirespharmaceuticalandmedicaldevicecompaniestomonitorandreportcertainfinancialinteractionswithphysiciansandotherhealthcareprofessionalsandhealthcareorganizationstothefederalgovernmentforre-disclosuretothepublic;and

• statelawequivalentsoftheabovefederallaws,suchasanti-kickbackandfalseclaimslawswhichmayapplytoitemsorservicesreimbursedbyanythird-partypayer,includingcommercialinsurers,statetransparencylawsandstatelawsgoverningtheprivacyandsecurityofhealthinformationincertaincircumstances,manyofwhichdifferfromeachotherinsignificantwaysandoftenarenotpreemptedbyfederallaws,thuscomplicatingcomplianceefforts.

OurglobalactivitiesaresubjecttotheU.S.ForeignCorruptPracticesActwhichprohibitscorporationsandindividualsfrompaying,offeringtopay,orauthorizingthepaymentofanythingofvaluetoanyforeigngovernmentofficial,governmentstaffmember,politicalparty,orpoliticalcandidateinanattempttoobtainorretainbusinessortootherwiseinfluenceapersonworkinginanofficialcapacity.Wearealsosubjecttosimilaranti-briberylawsintheothercountriesinwhichwedobusiness.

Ifouroperationsarefoundtobeinviolationofanyofthelawsdescribedaboveoranyotherlaws,rulesorregulationsthatapplytous,wewillbesubjecttopenalties,includingcivilandcriminalpenalties,damages,finesandthecurtailmentorrestructuringofouroperations.Anypenalties,damages,fines,curtailmentorrestructuringofouroperationscouldadverselyaffectourabilitytooperateourbusinessandourfinancialresults.Althoughcomplianceprogramscanmitigatetheriskofinvestigationandprosecutionforviolationsoftheselaws,rulesorregulations,wecannotbecertainthatourprogramwilladdressallareasofpotentialexposureandtherisksinthisareacannotbeentirelyeliminated,particularlybecausetherequirementsandgovernmentinterpretationsoftherequirementsinthisspaceareconstantlyevolving.Anyactionagainstusforviolationoftheselaws,rulesorregulations,evenifwesuccessfullydefendagainstit,couldcauseustoincursignificantlegalexpensesanddivertourmanagement'sattentionfromtheoperationofourbusiness,aswellasdamageourbusinessorreputation.Moreover,achievingandsustainingcompliancewithapplicablefederalandstateprivacy,security,fraudandreportinglawsmayprovecostly.

Healthcare reform and other governmental and private payer initiatives may have an adverse effect upon, and could prevent, our product's or productcandidates' commercial success.

TheU.S.governmentandindividualstatesareaggressivelypursuinghealthcarereform,asevidencedbythepassingofthePatientProtectionandAffordableCareAct,asmodifiedbytheHealth

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CareandEducationReconciliationActof2010.Thesehealthcarereformlawscontainseveralcostcontainmentmeasuresthatcouldadverselyaffectourfuturerevenue,including,forexample,increaseddrugrebatesunderMedicaidforbrandnameprescriptiondrugs,extensionofMedicaidrebatestoMedicaidmanagedcareplans,andextensionofso-called340Bdiscountedpricingonpharmaceuticalssoldtocertainhealthcareproviders.Additionalprovisionsofthehealthcarereformlawsthatmaynegativelyaffectourfuturerevenueandprospectsforprofitabilityincludetheassessmentofanannualfeebasedonourproportionateshareofsalesofbrandnameprescriptiondrugstocertaingovernmentprograms,includingMedicareandMedicaid,aswellasmandatorydiscountsonpharmaceuticalssoldtocertainMedicarePartDbeneficiaries.Otheraspectsofhealthcarereform,suchasexpandedgovernmentenforcementauthorityandheightenedstandardsthatcouldincreasecompliance-relatedcosts,couldalsoaffectourbusiness.

InadditiontogovernmentaleffortsintheU.S.,foreignjurisdictionsaswellasprivatehealthinsurersandmanagedcareplansarelikelytocontinuechallengingmanufacturers'abilitytoobtainreimbursement,aswellasthelevelofreimbursement,forpharmaceuticalsandotherhealthcare-relatedproductsandservices.Thesecost-controlinitiativescouldsignificantlydecreasetheavailablecoverageandthepricewemightestablishforlinaclotideandourotherpotentialproducts,whichwouldhaveanadverseeffectonourfinancialresults.

TheFoodandDrugAdministrationAmendmentsActof2007alsoprovidestheFDAenhancedpost-marketingauthority,includingtheauthoritytorequirepost-marketingstudiesandclinicaltrials,labelingchangesbasedonnewsafetyinformation,andcompliancewithriskevaluationsandmitigationstrategiesapprovedbytheFDA.WeandAllerganhaveestablishedanonclinicalandclinicalpost-marketingplanwiththeFDAtounderstandthesafetyandefficacyofLINZESSinpediatrics,whichisdiscussedabove.TheFDA'sexerciseofthisauthorityhasresulted(andisexpectedtocontinuetoresult)inincreaseddevelopment-relatedcostsfollowingthecommerciallaunchofLINZESSforthetreatmentofadultmenandwomensufferingfromIBS-CorCIC,andcouldresultinpotentialrestrictionsonthesaleand/ordistributionofLINZESS,eveninitsapprovedindicationsandpatientpopulations.

In pursuing our growth strategy, we will incur a variety of costs and may devote resources to potential opportunities that are never completed or for which wenever receive the benefit. Our failure to successfully discover, acquire, develop and market additional product candidates or approved products would impairour ability to grow and adversely affect our business.

Aspartofourgrowthstrategy,weintendtoexplorefurtherlinaclotidedevelopmentopportunities.WeandAllerganareexploringdevelopmentopportunitiestoenhancetheclinicalprofileofLINZESSbyseekingtoexpanditsutilityinitsindicatedpopulations,aswellasstudyinglinaclotideinadditionalindications,populationsandformulationstoassessitspotentialtotreatvariousGIconditions.ThesedevelopmenteffortsmayfailormaynotincreasetherevenuesthatwegeneratefromLINZESS.Furthermore,theymayresultinadverseevents,orperceivedadverseevents,incertainpatientpopulationsthatarethenattributedtothecurrentlyapprovedpatientpopulation,whichmayresultinadverseregulatoryactionattheFDAorinothercountriesorharmlinaclotide'sreputationinthemarketplace,eachofwhichcouldmateriallyharmourrevenuesfromlinaclotide.

Wearealsopursuingvariousotherprogramsinourpipeline.Wemayspendseveralyearsandmakesignificantinvestmentsindevelopinganycurrentorfutureinternalproductcandidate,andfailuremayoccuratanypoint.OurproductcandidatesareinvariousstagesofdevelopmentandmustsatisfyrigorousstandardsofsafetyandefficacybeforetheycanbeapprovedforsalebytheFDA.Tosatisfythesestandards,wemustallocateresourcesamongourvariousdevelopmentprogramsandwemustengageincostlyandlengthydiscoveryanddevelopmentefforts,whicharesubjecttounanticipateddelaysandothersignificantuncertainties.Despiteourefforts,ourproductcandidatesmaynotoffertherapeuticorotherimprovementoverexistingcompetitivedrugs,beprovensafeandeffectivein

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clinicaltrials,ormeetapplicableregulatorystandards.Itispossiblethatnoneoftheproductcandidateswearedevelopingwillbeapprovedforcommercialsale,whichwouldimpairourabilitytogrow.

Wehaveongoingorplannednonclinicalandclinicaltrialsforlinaclotideandanumberofourinternalproductcandidates,andthestrengthofourcompany'spipelinewilldependinlargepartontheoutcomesofthesestudies.Manycompaniesinthepharmaceuticalindustryhavesufferedsignificantsetbacksinclinicaltrialsevenafterachievingpromisingresultsinearliernonclinicalorclinicaltrials.Thefindingsfromourcompletednonclinicalstudiesmaynotbereplicatedinlaterclinicaltrials,andourclinicaltrialsmaynotbepredictiveoftheresultswemayobtaininlater-stageclinicaltrialsorofthelikelihoodofregulatoryapproval.Resultsfromourclinicaltrialsandfindingsfromournonclinicalstudiescouldleadtoabruptchangesinourdevelopmentactivities,includingthepossiblelimitationorcessationofdevelopmentactivitiesassociatedwithaparticularproductcandidateorprogram.Furthermore,ouranalysisofdataobtainedfromnonclinicalandclinicalactivitiesissubjecttoconfirmationandinterpretationbytheFDAandotherapplicableregulatoryauthorities,whichcoulddelay,limitorpreventregulatoryapproval.SatisfactionofFDAorotherapplicableregulatoryrequirementsiscostly,time-consuming,uncertainandsubjecttounanticipateddelays.

Inaddition,becauseourinternalresearchcapabilitiesarelimited,wemaybedependentuponpharmaceuticalandbiotechnologycompanies,academicscientistsandotherresearcherstosellorlicenseproductsortechnologytous.Thesuccessofthisstrategydependspartlyuponourabilitytoidentify,select,discoverandacquirepromisingpharmaceuticalproductcandidatesandproducts.Theprocessofproposing,negotiatingandimplementingalicenseoracquisitionofaproductcandidateorapprovedproductislengthyandcomplex.Othercompanies,includingsomewithsubstantiallygreaterfinancial,marketingandsalesresources,maycompetewithusforthelicenseoracquisitionofproductcandidatesandapprovedproducts.Wehavelimitedresourcestoidentifyandexecutetheacquisitionorin-licensingofthird-partyproducts,businessesandtechnologiesandintegratethemintoourcurrentinfrastructure.Moreover,wemaydevoteresourcestopotentialacquisitionsorin-licensingopportunitiesthatarenevercompleted,orwemayfailtorealizetheanticipatedbenefitsofsuchefforts.Wemaynotbeabletoacquiretherightstoadditionalproductsorproductcandidatesontermsthatwefindacceptable,oratall.

Inaddition,futureacquisitionsmayentailnumerousoperationalandfinancialrisks,including:

• exposuretounknownliabilities;

• disruptionofourbusinessanddiversionofourmanagement'stimeandattentiontodevelopacquiredproducts,productcandidatesortechnologies;

• incurrenceofsubstantialdebt,dilutiveissuancesofsecuritiesordepletionofcashtopayforacquisitions;

• higherthanexpectedacquisitionandintegrationcosts;

• difficultyincombiningtheoperationsandpersonnelofanyacquiredbusinesseswithouroperationsandpersonnel;

• increasedamortizationexpenses;

• impairmentofrelationshipswithkeysuppliersorcustomersofanyacquiredbusinessesduetochangesinmanagementandownership;and

• inabilitytomotivatekeyemployeesofanyacquiredbusinesses.

Further,anyproductcandidatethatweacquiremayrequireadditionaldevelopmenteffortspriortocommercialsale,includingextensiveclinicaltestingandapprovalbytheFDAandapplicableforeignregulatoryauthorities.Allproductcandidatesarepronetorisksoffailuretypicalofpharmaceutical

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productdevelopment,includingthepossibilitythataproductcandidatewillnotbeshowntobesufficientlysafeandeffectiveforapprovalbyregulatoryauthorities.

Delays in the completion of clinical testing of any of our product candidates could result in increased costs and delay or limit our ability to generate revenues.

Delaysinthecompletionofclinicaltestingcouldsignificantlyaffectourproductdevelopmentcosts.Wedonotknowwhetherplannedclinicaltrialswillbecompletedonschedule,ifatall.Thecommencementandcompletionofclinicaltrialscanbedelayedforanumberofreasons,includingdelaysrelatedto:

• obtainingregulatoryapprovaltocommenceaclinicaltrial;

• reachingagreementonacceptabletermswithprospectiveclinicalresearchorganizations,orCROs,andtrialsites,thetermsofwhichcanbesubjecttoextensivenegotiationandmayvarysignificantlyamongdifferentCROsandtrialsites;

• manufacturingsufficientquantitiesofaproductcandidateforuseinclinicaltrials;

• obtaininginstitutionalreviewboardapprovaltoconductaclinicaltrialataprospectivesite;

• recruitingandenrollingpatientstoparticipateinclinicaltrialsforavarietyofreasons,includingcompetitionfromotherclinicaltrialprogramsforthetreatmentofsimilarconditions;and

• maintainingpatientswhohaveinitiatedaclinicaltrialbutmaybepronetowithdrawduetosideeffectsfromthetherapy,lackofefficacyorpersonalissues,orwhoarelosttofurtherfollow-up.

Clinicaltrialsmayalsobedelayedasaresultofambiguousornegativeinterimresults.Inaddition,aclinicaltrialmaybesuspendedorterminatedbyus,aninstitutionalreviewboardoverseeingtheclinicaltrialataclinicaltrialsite(withrespecttothatsite),theFDA,orotherregulatoryauthoritiesduetoanumberoffactors,including:

• failuretoconducttheclinicaltrialinaccordancewithregulatoryrequirementsorthestudyprotocols;

• inspectionoftheclinicaltrialoperationsortrialsitesbytheFDAorotherregulatoryauthoritiesresultingintheimpositionofaclinicalhold;

• unforeseensafetyissues;or

• lackofadequateenrollmentorfundingtocontinuetheclinicaltrial.

Additionally,changesinregulatoryrequirementsandguidancemayoccur,andwemayneedtoamendclinicaltrialprotocolstoreflectthesechanges.Eachprotocolamendmentwouldrequireinstitutionalreviewboardreviewandapproval,whichmayadverselyimpactthecosts,timingorsuccessfulcompletionoftheassociatedclinicaltrials.Ifweexperiencedelaysincompletion,orifweterminateanyofourclinicaltrials,thecommercialprospectsforourproductcandidatemaybeharmed,andourabilitytogenerateproductrevenueswillbedelayed.Inaddition,manyofthefactorsthatcause,orleadto,adelayinthecommencementorcompletionofclinicaltrialsmayalsoultimatelyleadtothedenialofregulatoryapproval.

We may not be able to manage our business effectively if we lose any of our current management team or if we are unable to attract and motivate keypersonnel.

Wemaynotbeabletoattractormotivatequalifiedmanagementandscientific,clinical,operationsandcommercialpersonnelinthefutureduetotheintensecompetitionforqualifiedpersonnelamongbiotechnology,pharmaceuticalandotherbusinesses,particularlyinthegreater-Bostonarea.Ifweare

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notabletoattractandmotivatenecessarypersonneltoaccomplishourbusinessobjectives,wewillexperienceconstraintsthatwillsignificantlyimpedetheachievementofourobjectives.

Wearehighlydependentonthedrugdiscovery,development,regulatory,commercial,financialandotherexpertiseofourmanagement,particularlyPeterM.Hecht,Ph.D.,ourchiefexecutiveofficer;MarkG.Currie,Ph.D.,ourseniorvicepresident,chiefscientificofficerandpresidentofresearchanddevelopment;TomGraney,ourchieffinancialofficerandseniorvicepresident,financeandcorporatestrategy;ThomasA.McCourt,ourseniorvicepresident,marketingandsalesandchiefcommercialofficer;andHalleyE.Gilbert,ourseniorvicepresident,chieflegalofficer,andsecretary.Transitionsinourseniormanagementteammayresultinoperationaldisruptions,andourbusinessmaybeharmedasaresult.Inadditiontothecompetitionforpersonnel,theBostonareainparticularischaracterizedbyahighcostofliving.Assuch,wecouldhavedifficultyattractingexperiencedpersonneltoourcompanyandmayberequiredtoexpendsignificantfinancialresourcesinouremployeerecruitmentefforts.

Wealsohavescientificandclinicaladvisorswhoassistusinformulatingourproductdevelopment,clinicalstrategiesandourglobalsupplychainplans,aswellassalesandmarketingadvisorswhohaveassistedusinourcommercializationstrategyandbrandplanforlinaclotide.Theseadvisorsarenotouremployeesandmayhavecommitmentsto,orconsultingoradvisorycontractswith,otherentitiesthatmaylimittheiravailabilitytous,ormayhavearrangementswithothercompaniestoassistinthedevelopmentandcommercializationofproductsthatmaycompetewithours.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

Intheordinarycourseofourbusiness,wecollectandstoresensitivedata,includingintellectualproperty,ourproprietarybusinessinformationandthatofoursuppliersandbusinesspartners,aswellaspersonallyidentifiableinformationoflinaclotidepatients,clinicaltrialparticipantsandemployees.Wealsohaveoutsourcedelementsofourinformationtechnologystructure,andasaresult,wearemanagingindependentvendorrelationshipswiththirdpartieswhomayorcouldhaveaccesstoourconfidentialinformation.Similarly,ourbusinesspartnersandotherthirdpartyproviderspossesscertainofoursensitivedata.Thesecuremaintenanceofthisinformationiscriticaltoouroperationsandbusinessstrategy.Despiteoursecuritymeasures,ourinformationtechnologyandinfrastructuremaybevulnerabletoattacksbyhackersorbreachedduetoemployeeerror,malfeasanceorotherdisruptions.We,ourpartners,vendorsandotherthirdpartyproviderscouldbesusceptibletothirdpartyattacksonour,andtheir,informationsecuritysystems,whichattacksareofeverincreasinglevelsofsophisticationandaremadebygroupsandindividualswithawiderangeofmotivesandexpertise,includingcriminalgroups.Anysuchbreachcouldcompromiseour,andtheir,networksandtheinformationstoredtherecouldbeaccessed,publiclydisclosed,lostorstolen.Anysuchaccess,disclosureorotherlossofinformationcouldresultinlegalclaimsorproceedings,liabilityunderlawsthatprotecttheprivacyofpersonalinformation,disruptouroperations,anddamageourreputation,anyofwhichcouldadverselyaffectourbusiness.

Our business involves the use of hazardous materials, and we must comply with environmental laws and regulations, which can be expensive and restrict howwe do business.

Ouractivitiesinvolvethecontrolledstorage,useanddisposalofhazardousmaterials.Wearesubjecttofederal,state,cityandlocallawsandregulationsgoverningtheuse,manufacture,storage,handlinganddisposalofthesehazardousmaterials.Althoughwebelievethatthesafetyproceduresweuseforhandlinganddisposingofthesematerialscomplywiththestandardsprescribedbytheselawsandregulations,wecannoteliminatetheriskofaccidentalcontaminationorinjuryfromthesematerials.Intheeventofanaccident,local,city,stateorfederalauthoritiesmaycurtailtheuseofthesematerialsandinterruptourbusinessoperations.Wedonotcurrentlymaintainhazardousmaterialsinsurancecoverage.

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RisksRelatedtoIntellectualProperty

Limitations on our patent rights relating to our product candidates may limit our ability to prevent third parties from competing against us.

Oursuccessdependsonourabilitytoobtainandmaintainpatentprotectionforourproductcandidates,preserveourtradesecrets,preventthirdpartiesfrominfringinguponourproprietaryrightsandoperatewithoutinfringingupontheproprietaryrightsofothers.

Thestrengthofpatentsinthepharmaceuticalindustryinvolvescomplexlegalandscientificquestionsandcanbeuncertain.PatentapplicationsintheU.S.andmostothercountriesareconfidentialforaperiodoftimeuntiltheyarepublished,andpublicationofdiscoveriesinscientificorpatentliteraturetypicallylagsactualdiscoveriesbyseveralmonthsormore.Asaresult,wecannotbecertainthatwewerethefirsttoconceiveinventionscoveredbyourpatentsandpendingpatentapplicationsorthatwewerethefirsttofilepatentapplicationsforsuchinventions.Inaddition,wecannotbecertainthatourpatentapplicationswillbegranted,thatanyissuedpatentswilladequatelyprotectourintellectualproperty,orthatsuchpatentswillnotbechallenged,narrowed,invalidatedorcircumvented.

WehaveseveralissuedpatentsandpendingapplicationsintheU.S.relatedtoLINZESS,includingaLINZESScompositionofmatterandmethodsofusepatent(U.S.Patent7,304,036)andtwopatentsrelatingtoourcommercial,roomtemperaturestableformulationoflinaclotideandmethodsofusingthisformulation.WealsohaveadditionalU.S.patentsandapplicationscoveringprocessesformakingLINZESS,formulationsanddosingregimensthereof,andmoleculesrelatedtoLINZESS.Althoughnoneoftheseissuedpatentscurrentlyissubjecttoapatentreexaminationorreview,wecannotguaranteethattheywillnotbesubjecttoreexaminationorreviewbytheU.S.PatentandTrademarkOffice,ortheUSPTO,inthefuture.IfanyorallofourLINZESS-relatedpatentswereinvalidated,wewouldstillhaveatleastfiveyearsofmarketingexclusivityundertheHatch-WaxmanActfromFDAapprovalofLINZESS.Webelievethateachofthepatentsinourlinaclotidepatentportfoliowasrightfullyissuedandtheportfoliogivesussufficientfreedomtooperate;however,ifanyofourpresentorfuturepatentsisinvalidated,thiscouldhaveanadverseeffectonourbusinessandfinancialresults,particularlyfortheperiodbeyondfiveyearsfollowingmarketingapproval.

InMarch2013,anoppositiontooneofourgrantedpatentscoveringlinaclotidewasfiledinEurope.InApril2015,thepatentwasupheldinitsentiretybytheEuropeanPatentOffice,affirmingthestrengthofourintellectualpropertyandourbeliefthattheoppositionwaswithoutmerit.Webelievethatthispatentwasappropriatelygrantedbutwecannotbecertainofthisuntiltheoppositionproceedings,includingtheassociatedappealsprocess,arecomplete.Whiletheoppositionisongoing,wewillincuradditionalexpenseandberequiredtofocusadditionaleffortsontheproceedings.However,evenifthispatentwereultimatelyfoundtobeinvalid,wehaveothercompositionofmatter-anduse-relatedlinaclotidepatentsthataregrantedandinforce,andwebelievethesepatentsprovidestrongandsufficientpatentprotectioninEurope.

Furthermore,theAmericaInventsAct,whichwassignedintolawin2011,hasmadeseveralmajorchangesintheU.S.patentstatutes.ThesechangeswillpermitthirdpartiestochallengeourpatentsmoreeasilyandwillcreateuncertaintywithrespecttotheinterpretationandpracticeofU.S.patentlawfortheforeseeablefuture.

Wealsorelyuponunpatentedtradesecrets,unpatentedknow-howandcontinuingtechnologicalinnovationtodevelopandmaintainourcompetitiveposition,whichweseektoprotect,inpart,byconfidentialityagreementswithouremployeesandourcollaboratorsandconsultants.Wealsohaveagreementswithouremployeesandselectedconsultantsthatobligatethemtoassigntheirinventionstous.Itispossible,however,thattechnologyrelevanttoourbusinesswillbeindependentlydevelopedbyapersonthatisnotapartytosuchanagreement.Furthermore,iftheemployeesandconsultantsthat

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arepartiestotheseagreementsbreachorviolatethetermsoftheseagreements,wemaynothaveadequateremedies,andwecouldloseourtradesecretsthroughsuchbreachesorviolations.Further,ourtradesecretscouldotherwisebecomeknownorbeindependentlydiscoveredbyourcompetitors.

Inaddition,thelawsofcertainforeigncountriesdonotprotectproprietaryrightstothesameextentorinthesamemannerastheU.S.,and,therefore,wemayencounterproblemsinprotectinganddefendingourintellectualpropertyincertainforeignjurisdictions.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in such litigationcould have a material adverse effect on our business.

Ourcommercialsuccessdependsonourability,andtheabilityofourcollaborators,todevelop,manufacture,marketandsellourproductsanduseourproprietarytechnologieswithoutinfringingtheproprietaryrightsofthirdparties.NumerousU.S.andforeignissuedpatentsandpendingpatentapplications,whichareownedbythirdparties,existinthefieldsinwhichweandourcollaboratorsaredevelopingproducts.Asthebiotechnologyandpharmaceuticalindustryexpandsandmorepatentsareissued,theriskincreasesthatourpotentialproductsmaygiverisetoclaimsofinfringementofthepatentrightsofothers.Theremaybeissuedpatentsofthirdpartiesofwhichwearecurrentlyunawarethatmaybeinfringedbylinaclotideorourproductcandidates.Becausepatentapplicationscantakemanyyearstoissue,theremaybecurrentlypendingapplicationswhichmaylaterresultinissuedpatentsthatlinaclotideorourproductcandidatesmayinfringe.

Wemaybeexposedto,orthreatenedwith,litigationbythirdpartiesallegingthatlinaclotideorourproductcandidatesinfringetheirintellectualpropertyrights.Iflinaclotideoroneofourproductcandidatesisfoundtoinfringetheintellectualpropertyrightsofathirdparty,weorourcollaboratorscouldbeenjoinedbyacourtandrequiredtopaydamagesandcouldbeunabletocommercializelinaclotideortheapplicableproductcandidateunlessweobtainalicensetotheintellectualpropertyrights.Alicensemaynotbeavailabletousonacceptableterms,ifatall.Inaddition,duringlitigation,thecounter-partycouldobtainapreliminaryinjunctionorotherequitablereliefwhichcouldprohibitusfrommaking,usingorsellingourproducts,pendingatrialonthemerits,whichmaynotoccurforseveralyears.

Thereisasubstantialamountoflitigationinvolvingpatentandotherintellectualpropertyrightsinthebiotechnologyandpharmaceuticalindustriesgenerally.Ifathirdpartyclaimsthatweorourcollaboratorsinfringeitsintellectualpropertyrights,wemayfaceanumberofissues,including,butnotlimitedto:

• infringementandotherintellectualpropertyclaimswhich,regardlessofmerit,maybeexpensiveandtime-consumingtolitigateandmaydivertourmanagement'sattentionfromourcorebusiness;

• substantialdamagesforinfringement,whichwemayhavetopayifacourtdecidesthattheproductatissueinfringesonorviolatesthethirdparty'srights,and,ifthecourtfindsthattheinfringementwaswillful,wecouldbeorderedtopaytrebledamagesandthepatentowner'sattorneys'fees;

• acourtprohibitingusfromsellingourproductunlessthethirdpartylicensesitsrightstous,whichitisnotrequiredtodo;

• ifalicenseisavailablefromathirdparty,wemayhavetopaysubstantialroyalties,feesorgrantcross-licensestoourintellectualpropertyrights;and

• redesigningourproductssotheydonotinfringe,whichmaynotbepossibleormayrequiresubstantialmonetaryexpendituresandtime.

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We may become involved in legal proceedings to protect or enforce our patents, which could be expensive and time consuming, and unfavorable outcomes insuch proceedings could have a material adverse effect on our business.

Competitorsmayinfringeourpatentsormayassertourpatentsareinvalid.Tocounterongoingorpotentialinfringementorunauthorizeduse,wemayberequiredtofileinfringementclaims,whichcanbeexpensiveandtime-consuming.Litigationwithgenericmanufacturershasbecomeincreasinglycommoninthebiotechnologyandpharmaceuticalindustries.Inaddition,inaninfringementorinvalidityproceeding,acourtorpatentadministrativebodymaydeterminethatapatentofoursisnotvalidorisunenforceable,ormayrefusetostoptheotherpartyfromusingthetechnologyatissueonthegroundsthatourpatentsdonotcoverthetechnologyinquestion.Oneormoregenericdrugmanufacturersmayfileabbreviatednewdrugapplications,orANDAs,withtheFDAforgenericversionsofLINZESS.GenericdrugmanufacturerswillfirstbeabletofileANDAsinAugust2016,butwemaynotbecomeawareofthesefilingsforseveralmonthsafteranysuchsubmissionduetoproceduresspecifiedunderapplicableFDAregulations.WhenfilinganANDAforLINZESS,agenericdrugmanufacturermaychoosetochallengeoneormoreofthepatentsthatcoverLINZESS.Assuch,wemayneedtoprotectourintellectualpropertyrightsbybringinglegalproceedingsagainstthegenericdrugmanufacturer.

Additionally,thevalidityofourpatentsmaybechallengedbythirdpartiespursuanttoadministrativeproceduresintroducedbytheAmericanInventsAct,specificallyinterpartesreview,orIPR,and/orpostgrantreview,orPGR,beforetheUSPTO.GenericdrugmanufacturersmaychallengeourpatentsthroughIPRsorPGRsinsteadoforinadditiontoANDAlegalproceedings.Patentlitigation,IPRsandPGRsinvolvecomplexlegalandfactualquestionsandwemayneedtodevotesignificantresourcestosuchlegalproceedings.Wecanprovidenoassuranceconcerningthedurationortheoutcomeofanysuchpatent-relatedlawsuitsoradministrativeproceedings.Anadverseresultinanylitigationordefenseproceedingscouldputoneormoreofourpatentsatriskofbeinginvalidatedorinterpretednarrowlyandcouldputourpatentapplicationsatriskofnotissuing,whichwouldmateriallyharmourbusiness.

InterferenceorderivationproceedingsbroughtbytheUSPTOmaybenecessarytodeterminethepriorityofinventionswithrespecttoourpatentsandpatentapplicationsorthoseofourcollaborators.Anunfavorableoutcomecouldrequireustoceaseusingthetechnologyortoattempttolicenserightstoitfromtheprevailingparty.Ourbusinesscouldbeharmedifaprevailingpartydoesnotofferusalicenseontermsthatareacceptabletous.Litigationorinterferenceproceedingsmayfailand,evenifsuccessful,mayresultinsubstantialcostsanddistractionofourmanagementandotheremployees.Inaddition,wemaynotbeabletoprevent,aloneorwithourcollaborators,misappropriationofourproprietaryrights,particularlyincountrieswherethelawsmaynotprotectthoserightsasfullyasintheU.S.

Furthermore,becauseofthesubstantialamountofdiscoveryrequiredinconnectionwithintellectualpropertylitigation,aswellasthepotentialforpublicannouncementsoftheresultsofhearings,motionsorotherinterimproceedingordevelopments,thereisariskthatsomeofourconfidentialinformationcouldbecompromisedbydisclosureduringthistypeoflitigation.

RisksRelatedtoOurFinancesandCapitalRequirements

We have incurred significant losses since our inception and cannot guarantee when, if ever, we will become profitable.

Inrecentyears,wehavefocusedprimarilyondeveloping,manufacturingandcommercializinglinaclotide,aswellasdevelopingourotherproductcandidates.Wehavefinancedourbusinesstodateprimarilythroughtheissuanceofequity,ourcollaborationandlicensearrangements,ourJanuary2013issuanceofour11%PhaRMANotesdue2024,orthePhaRMANotes,relatedtothesalesof

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LINZESSintheU.S.andourJune2015issuanceofour2.25%ConvertibleSeniorNotesdueJune15,2022,orthe2022Notes,andwehaveincurredlossesineachyearsinceourinceptionin1998.WecurrentlyderivesubstantiallyallofourrevenuefromourLINZESScollaborationwithAllerganfortheU.S.andbelievethattherevenuesfromthiscollaborationwillcontinuetoconstituteasignificantportionofourtotalrevenuefortheforeseeablefuture.Weincurrednetlossesofapproximately$142.7million,$189.6millionand$272.8millionintheyearsendedDecember31,2015,2014and2013,respectively.AsofDecember31,2015,wehadanaccumulateddeficitofapproximately$1.1billion.WecannotbecertainthatsalesofLINZESSandtherevenuefromourothercommercialactivitieswillnotfallshortofourprojectionsorbedelayed.Further,weexpecttocontinuetoincursubstantialexpensesinconnectionwithoureffortstocommercializelinaclotideandourresearchanddevelopmentofourproductcandidates.Becauseofthenumerousrisksanduncertaintiesassociatedwithdevelopingandcommercializingpharmaceuticalproducts,aswellasthoserelatedtoourexpectationsforLINZESSandourothercommercialactivities,weareunabletopredicttheextentofanyfuturelossesorguaranteewhen,orif,ourcompanywillbecomeprofitableorcashflowpositive.Ifweneverachieveprofitabilityorpositivecashflows,orachieveeitherlaterthanweanticipate,thiswillhaveanadverseeffectonourstockholders'equityandworkingcapital.

We may need additional funding and may be unable to raise capital when needed, which could cause us to delay, reduce or eliminate our product developmentprograms or commercialization efforts.

InJune2015,weissuedapproximately$335.7millionaggregateprincipalamountofour2022Notesandwehavepreviouslyraisedadditionalfundsthroughothercapitalraisingactivities,includingthesaleofsharesofourClassAcommonstockinpublicofferingsandtheissuanceofourPhaRMANotesinJanuary2013.However,marketingandsellingaprimarycaredrug,purchasingcommercialquantitiesofpharmaceuticalproducts,anddevelopingproductcandidatesandconductingclinicaltrialsareexpensiveanduncertain.Circumstances,ourstrategicimperatives,oropportunitiestocreateoracquirenewprograms,aswellasmaturities,redemptionsorrepurchasesofouroutstandingdebtsecurities,couldrequireusto,orwemaychooseto,seektoraiseadditionalfunds.Theamountandtimingofourfuturefundingrequirementswilldependonmanyfactors,including,butnotlimitedto:

• thelevelofunderlyingdemandforlinaclotidebyprescribersandpatientsintheU.S.,theE.U.andtheothercountrieswhereitisapproved;

• thecostsassociatedwithcommercializingLINZESSintheU.S.;

• thecostsofmaintainingandexpandingsales,marketinganddistributioncapabilitiesforlinaclotide;

• theregulatoryapprovaloflinaclotideoutsideoftheU.S.,theE.U.andtheothercountrieswhereitisapproved,andthetimingofcommerciallaunchesinthosecountries,aswellastheassociateddevelopmentandcommercialmilestonesandroyalties;

• therateofprogress,thecostofourclinicaltrialsandtheothercostsassociatedwithourproductdevelopmentprograms,includingourpost-approvalnonclinicalandclinicalstudiesoflinaclotideinpediatricsandourinvestmenttoenhancetheclinicalprofileofLINZESSwithinitsindicatedpopulations,aswellastostudylinaclotideinadditionalindications,populationsandformulationstoassessitspotentialtotreatvariousGIconditions;

• thecostsandtimingofin-licensingadditionalproductsorproductcandidatesoracquiringothercomplementarycompanies;

• thestatus,termsandtimingofanycollaboration,licensing,co-commercializationorotherarrangements;

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• thetimingofanyregulatoryapprovalsofourproductcandidates;

• whethertheholdersofour2022NotesholdthenotestomaturitywithoutconversionintoourClassAcommonstockandwhetherwearerequiredtorepurchaseour2022Notespriortomaturityuponafundamentalchange,asdefinedintheindenturegoverningthe2022Notes;and

• whetherweseektoredeemorrepurchaseallorpartofouroutstandingdebtthroughcashpurchasesand/orexchanges,inopenmarketpurchases,privatelynegotiatedtransactions,bytenderofferorotherwise.

Additionalfundingmaynotbeavailableonacceptabletermsoratall.Ifadequatefundsarenotavailable,wemayberequiredtodelayorreducethescopeofourcommercializationefforts,delay,reduceoreliminateoneormoreofourdevelopmentprogramsordelayorabandonpotentialstrategicopportunities.

Our ability to pay principal of and interest on our outstanding debt securities will depend in part on the receipt of payments from Allergan under ourcollaboration agreement for North America.

InJanuary2013,weissued$175.0millionaggregateprincipalamountofourPhaRMANotesbearinganannualinterestrateof11%andinJune2015,weissuedapproximately$335.7millionaggregateprincipalamountofour2022Notesbearinganannualinterestrateof2.25%.QuarterlyinterestpaymentsonourPhaRMANotescommencedonJune15,2013andsemi-annualpaymentsonour2022NotescommencedonDecember15,2015.InMarch2014,webeganmakingquarterlypaymentsonthePhaRMANotesequaltothegreaterof(i)7.5%ofnetsalesofLINZESSintheU.S.fortheprecedingquarterand(ii)thequarterlyinterestamount.PrincipalonthePhaRMANotesisrepaidinanamountequaltothedifferencebetween(i)and(ii)above,whenthisisapositivenumber,untiltheprincipalhasbeenpaidinfull.Weexpectthatforthenextfewyears,ataminimum,thenetquarterlypaymentsfromAllerganwillbeourprimarysourceofcashflowfromoperations.IfthecashflowsderivedfromthenetquarterlypaymentsthatwereceivefromAllerganunderthecollaborationagreementforNorthAmericaareinsufficientonanyparticularpaymentdatetofundtheinterestpaymentonouroutstandingindebtedness,ataminimum,wewillbeobligatedtopaytheamountsofsuchshortfalloutofourgeneralfunds.ThedeterminationofwhetherAllerganwillbeobligatedtomakeanetquarterlypaymenttousinrespectofaparticularquarterlyperiodisafunctionoftherevenuegeneratedbyLINZESSintheU.S.aswellasthedevelopment,manufacturingandcommercializationexpensesincurredbyeachofusandAllerganunderthecollaborationagreementforNorthAmerica.Accordingly,sincewecannotguaranteewhen,orif,ourcompanywillbecomeprofitableorcashflowpositive,wecannotprovideassurancesthat(i)wewillhavetheavailablefundstofundtheinterestpaymentonouroutstandingindebtedness,ataminimum,intheeventthatthereisadeficiencyinthenetquarterlypaymentreceivedfromAllergan,(ii)therewillbeanetquarterlypaymentfromAllerganatallor(iii)wewillnotalsoberequiredtomakeatrue-uppaymenttoAllerganunderthecollaborationagreementforNorthAmerica,ineachcase,inrespectofaparticularquarterlyperiod.

Our indebtedness could adversely affect our financial condition or restrict our future operations.

AsofDecember31,2015,wehadtotalindebtednessofapproximately$496.8millionandavailablecash,cashequivalentsandavailableforsalesecuritiesof$439.4million.WechosetoissueourPhaRMANotesand2022Notesbasedontheadditionalstrategicoptionalitythattheycreateforus,andthelimitedrestrictionsthatthesedebtsecuritiesplaceonourabilitytorunourbusinesscomparedtootherpotentialavailablefinancingtransactions.However,ourindebtedness,combinedwithourother

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financialobligationsandcontractualcommitments,couldhaveotherimportantconsequencesonourbusiness,including:

• limitingourabilitytoobtainadditionalfinancingtofundfutureworkingcapital,capitalexpendituresorothergeneralcorporatepurposes,includingproductdevelopment,commercializationefforts,researchanddevelopmentactivities,strategicarrangements,acquisitionsandrefinancingofouroutstandingdebt;

• requiringasubstantialportionofourcashflowtobededicatedtodebtservicepaymentsinsteadofotherpurposes,therebyreducingtheamountofcashflowavailableforworkingcapital,capitalexpenditures,corporatetransactionsandothergeneralcorporatepurposes;

• increasingourvulnerabilitytoadversechangesingeneraleconomic,industryandcompetitiveconditions;

• limitingourflexibilityinplanningforandreactingtochangesintheindustryinwhichwecompete;

• placingusatadisadvantagecomparedtoother,lessleveragedcompetitorsorcompetitorswithcomparabledebtatmorefavorableinterestrates;and

• increasingourcostofborrowing.

Ifwedonotgeneratesufficientcashflowfromoperationsoriffutureborrowingsarenotavailabletousinanamountsufficienttopayourindebtedness,includingpaymentsofprincipalwhendueonouroutstandingindebtednessor,inthecaseofour2022Notes,inconnectionwithatransactioninvolvingusthatconstitutesafundamentalchangeundertheindenturegoverningthe2022Notes,ortofundourliquidityneeds,wemaybeforcedtorefinancealloraportionofourindebtednessonorbeforethematuritydatesthereof,sellassets,reduceordelaycurrentlyplannedactivitiesorcurtailoperations,seektoraiseadditionalcapitalortakeotheractions.Wemaynotbeabletoexecuteanyoftheseactionsoncommerciallyreasonabletermsoratall.This,togetherwithanyofthefactorsdescribedabove,couldmateriallyandadverselyaffectourbusiness,financialconditionandresultsofoperations.

Inaddition,whileour2022Notesdonotincludecovenantsrestrictingtheoperationofourbusinessexceptincertainlimitedcircumstances,intheeventofadefaultunderthe2022Notes,thenoteholdersorthetrusteeundertheindenturegoverningthe2022Notesmayaccelerateourpaymentobligationsunderthe2022Notes,whichcouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Wearealsorequiredtooffertorepurchasethe2022Notesupontheoccurrenceofafundamentalchange,whichcouldinclude,amongotherthings,anyacquisitionofourcompany(otherthananacquisitioninwhichatleast90%oftheconsiderationiscommonstocklistedonTheNASDAQGlobalorGlobalSelectMarketorTheNewYorkStockExchange),subjecttothetermsofthe2022Notesindenture.Therepurchasepricemustbepaidincash,andthisobligationmayhavetheeffectofdiscouraging,delayingorpreventinganacquisitionofourcompanythatwouldotherwisebebeneficialtooursecurityholders.

Further,althoughwearenotasrestrictedunderourPhaRMANotesaswemighthavebeenunderamoretraditionalsecuredcreditfacilityprovidedbyabank,theindenturegoverningourPhaRMANotescontainsanumberofrestrictivecovenantsthatimposerestrictionsonusandmaylimitourabilitytoengageincertainacts,includingrestrictionsonourabilityto:

• amendourcollaborationagreementwithAllerganforNorthAmericainawaythatwouldhaveamaterialadverseeffectonthenoteholders'rights,orterminatethiscollaborationagreementwithrespecttotheU.S.;

• transferourrightstocommercializetheproductunderourcollaborationagreementwithAllerganforNorthAmerica;and

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• incurcertainliens.

UponabreachofthecovenantsunderourPhaRMANotesindenture,orifcertainotherdefaultsthereunderoccur,theholdersofourPhaRMANotescouldelecttodeclareallamountsoutstandingunderourPhaRMANotestobeimmediatelydueandpayableandwecannotbecertainthatwewillhavesufficientassetstorepaythem.Ifweareunabletorepaythoseamounts,theholdersofourPhaRMANotescouldproceedagainstthecollateralgrantedtothemtosecurethedebtsecuritiesandwecouldbeforcedintobankruptcyorliquidation.IfwebreachourcovenantsunderourPhaRMANotesindentureandseekawaiver,wemaynotbeabletoobtainawaiverfromtherequirednoteholders.Ifthisoccurs,wewouldbeindefaultunderourPhaRMANotesindentureandtheholdersofourPhaRMANotescouldexercisetheirrights,asdescribedabove.

Eachofour2022NotesandthePhaRMANotesalsoincludecross-defaultfeaturesprovidingthatadefaultundertheindenturegoverningeitherthe2022NotesorthePhaRMANoteswouldlikelyresultinadefaultundertheindenturegoverningtheotherindebtedness.Intheeventofsuchdefault,thetrusteeornoteholderscouldelecttodeclareallamountsoutstandingtobeimmediatelydueandpayableundertheapplicableindenture,whichcouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.

Convertible note hedge and warrant transactions entered into in connection with our 2022 Notes may affect the value of our Class A common stock.

Inconnectionwithour2022Notes,weenteredintoConvertibleNoteHedgesandseparateNoteHedgeWarranttransactionswithcertainfinancialinstitutions.Thesetransactionsareexpectedgenerallytoreducethepotentialdilutionuponanyconversionofour2022Notesoroffsetanycashpaymentswearerequiredtomakeinexcessoftheprincipalamountofconverted2022Notes,asthecasemaybe.

Inconnectionwiththesetransactions,thefinancialinstitutionspurchasedourClassAcommonstockinsecondarymarkettransactionsandenteredintovariousover-the-counterderivativetransactionswithrespecttoourClassAcommonstock.Theseentitiesortheiraffiliatesarelikelytomodifytheirhedgepositionsfromtimetotimepriortoconversionormaturityofthe2022NotesbypurchasingandsellingsharesofourClassAcommonstockorotherinstrumentstheymaywishtouseinconnectionwithsuchhedging.AnyoftheseactivitiescouldadverselyaffectthevalueofourClassAcommonstockand,asaresult,thenumberofsharesandthevalueoftheClassAcommonstocknoteholderswillreceiveuponconversionofthe2022Notes.Inaddition,undercertaincircumstancesthecounterpartieshavetherighttoterminatetheConvertibleNoteHedgesandsettletheNoteHedgeWarrantsatfairvalue(asdefinedintheapplicableconfirmations),whichmayresultinusnotreceivingalloranyportionoftheanticipatedbenefitoftheConvertibleNoteHedges.IfthepriceofourClassAcommonstockincreasessuchthatthehedgetransactionssettleinourfavor,wecouldalsobeexposedtocreditriskrelatedtothecounterpartiestotheConvertibleNoteHedges,whichwouldlimitoreliminatethebenefitofsuchtransactionstous.

Our quarterly and annual operating results may fluctuate significantly.

Weexpectouroperatingresultstobesubjecttofrequentfluctuations.Ournetlossandotheroperatingresultswillbeaffectedbynumerousfactors,including:

• thelevelofunderlyingdemandforlinaclotideintheU.S.,theE.U.andtheothercountrieswhereitisapproved,andwholesalers'buyingpatterns;

• thecostsassociatedwithcommercializingLINZESSintheU.S.;

• theachievementandtimingofmilestonepaymentsunderourexistingcollaborationandlicenseagreements;

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• ourexecutionofanycollaboration,partnership,licensingorotherstrategicarrangements,andthetimingofpaymentswemaymakeorreceiveunderthesearrangements;

• anyexcessorobsoleteinventoryorassetimpairmentsandassociatedwrite-downs;

• variationsinthelevelofexpensesrelatedtoourdevelopmentprograms;

• additionorterminationofclinicaltrials;

• regulatorydevelopmentsaffectinglinaclotideorourproductcandidates;and

• anymateriallawsuitinwhichwemaybecomeinvolved.

Ifouroperatingresultsfallbelowtheexpectationsofinvestorsorsecuritiesanalysts,thepriceofourClassAcommonstockcoulddeclinesubstantially.Furthermore,anyquarterlyorannualfluctuationsinouroperatingresultsmay,inturn,causethepriceofourstocktofluctuatesubstantially.

Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments is limited by provisions of theInternal Revenue Code, and it is possible that our net operating loss and tax credit carryforwards may expire before we generate sufficient taxable income touse such carryforwards, or that certain transactions or a combination of certain transactions may result in material additional limitations on our ability to useour net operating loss and tax credit carryforwards.

Wehaveincurredsignificantnetlossessinceourinceptionandcannotguaranteewhen,ifever,wewillbecomeprofitable.Totheextentthatwecontinuetogeneratefederalandstatetaxablelosses,unusednetoperatinglossandtaxcreditcarryforwardswillcarryforwardtooffsetfuturetaxableincome,ifany,untilsuchunusedcarryforwardsexpire.Sections382and383oftheInternalRevenueCodeof1986,asamended,containrulesthatlimittheabilityofacompanythatundergoesanownershipchange,whichisgenerallyanychangeinownershipofmorethan50%ofitsstockoverathree-yearperiod,toutilizeitsnetoperatinglossandtaxcreditcarryforwardsandcertainbuilt-inlossesrecognizedinyearsaftertheownershipchange.Theserulesgenerallyoperatebyfocusingonownershipchangesinvolvingstockholdersowningdirectlyorindirectly5%ormoreofthestockofacompanyandanychangeinownershiparisingfromanewissuanceofstockbythecompany.Generally,ifanownershipchangeoccurs,theyearlytaxableincomelimitationontheuseofnetoperatinglossandtaxcreditcarryforwardsandcertainbuilt-inlossesisequaltotheproductoftheapplicablelongtermtaxexemptrateandthevalueofthecompany'sstockimmediatelybeforetheownershipchange.

Ifwedonotgeneratesufficienttaxableincomepriortotheexpirationoftheapplicablecarryforwardsorifthecarryforwardsaresubjecttothelimitationsdescribedabove,wemaybeunabletooffsetourtaxableincomewithlosses,orourtaxliabilitywithcredits,beforesuchlossesandcreditsexpireandthereforewouldincurlargerfederalorstateincometaxliability.WehavecompletedseveralfinancingssinceourinceptionwhichmayhaveresultedinachangeincontrolasdefinedbySection382,orcouldresultinachangeincontrolinthefuture.

RisksRelatingtoSecuritiesMarketsandInvestmentinOurStock

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could negatively impact the marketprice of our Class A common stock.

Provisionsinourcertificateofincorporationandbylawsmayhavetheeffectofdelayingorpreventingachangeofcontrol.Theseprovisionsincludethefollowing:

• Ourcertificateofincorporationprovidesforadualclasscommonstockstructure.Asaresultofthisstructure,holdersofourClassBcommonstockhavesignificantinfluenceovercertainmattersrequiringstockholderapproval,includingamergerinvolvingIronwood,asaleofsubstantiallyallIronwoodassetsandadissolutionorliquidationofIronwood.Thisconcentrated

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controlcoulddiscourageothersfrominitiatingachangeofcontroltransactionthatotherstockholdersmayviewasbeneficial.

• Ourboardofdirectorsisdividedintothreeclassesservingstaggeredthree-yearterms,suchthatnotallmembersoftheboardareelectedatonetime.Thisstaggeredboardstructurepreventsstockholdersfromreplacingtheentireboardatasinglestockholders'meeting.

• Ourboardofdirectorshastherighttoelectdirectorstofillavacancycreatedbytheexpansionoftheboardofdirectorsortheresignation,deathorremovalofadirector,whichpreventsstockholdersfrombeingabletofillvacanciesonourboardofdirectors.

• Ourboardofdirectorsmayissue,withoutstockholderapproval,sharesofpreferredstock.Theabilitytoauthorizepreferredstockmakesitpossibleforourboardofdirectorstoissuepreferredstockwithvotingorotherrightsorpreferencesthatcouldimpedethesuccessofanyattempttoacquireus.

• Stockholdersmustprovideadvancenoticetonominateindividualsforelectiontotheboardofdirectorsortoproposemattersthatcanbeacteduponatastockholders'meeting.Furthermore,stockholdersmayonlyremoveamemberofourboardofdirectorsforcause.Theseprovisionsmaydiscourageordeterapotentialacquirerfromconductingasolicitationofproxiestoelectsuchacquirer'sownslateofdirectorsorotherwiseattemptingtoobtaincontrolofourcompany.

• Ourstockholdersmaynotactbywrittenconsent.Asaresult,aholder,orholders,controllingamajorityofourcapitalstockarenotabletotakecertainactionsoutsideofastockholders'meeting.

• Specialmeetingsofstockholdersmaybecalledonlybythechairmanofourboardofdirectors,ourchiefexecutiveofficeroramajorityofourboardofdirectors.Asaresult,aholder,orholders,controllingamajorityofourcapitalstockarenotabletocallaspecialmeeting.

• AmajorityoftheoutstandingsharesofClassBcommonstockarerequiredtoamendourcertificateofincorporationandasuper-majority(80%)oftheoutstandingsharesofcommonstockarerequiredtoamendourbylaws,whichmakeitmoredifficulttochangetheprovisionsdescribedabove.

Inaddition,wearegovernedbytheprovisionsofSection203oftheDelawareGeneralCorporationLaw,whichmayprohibitcertainbusinesscombinationswithstockholdersowning15%ormoreofouroutstandingvotingstock.TheseandotherprovisionsinourcertificateofincorporationandourbylawsandintheDelawareGeneralCorporationLawcouldmakeitmoredifficultforstockholdersorpotentialacquirerstoobtaincontrolofourboardofdirectorsorinitiateactionsthatareopposedbythethen-currentboardofdirectors.

The concentration of voting control on certain corporate matters with our pre-IPO stockholders will limit the ability of the holders of our Class A commonstock to influence such matters.

Becauseofourdualclasscommonstockstructure,theholdersofourClassBcommonstock,whoconsistofourpre-IPOinvestors(andtheiraffiliates),founders,directors,executivesandcertainofouremployees,areabletocontrolcertaincorporatematterslistedbelowifanysuchmatterissubmittedtoourstockholdersforapprovaleventhoughsuchstockholdersownlessthan50%oftheoutstandingsharesofourcommonstock.AsofDecember31,2015,therewere127,371,478and15,870,356sharesofourClassAcommonstockandClassBcommonstockissuedandoutstanding,respectively,andanaggregateof16,012,732and4,554,128outstandingstockoptions(vestedandunvested)and900,051andzerounvestedrestrictedstockunitsforsharesofourClassAcommonstockandClassBcommonstock,respectively.AsofDecember31,2015,theholdersofourClassAcommonstockownapproximately89%andtheholdersofourClassBcommonstockownapproximately11%ofthe

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outstandingsharesofClassAcommonstockandClassBcommonstock,combined.However,becauseofourdualclasscommonstockstructuretheseholdersofourClassAcommonstockhaveapproximately45%andholdersofourClassBcommonstockhaveapproximately55%ofthetotalvotesoneachofthemattersidentifiedinthelistbelow.ThisconcentratedcontrolofourClassBcommonstockholderslimitstheabilityoftheClassAcommonstockholderstoinfluencethosecorporatemattersand,asaresult,wemaytakeactionsthatmanyofourstockholdersdonotviewasbeneficial,whichcouldadverselyaffectthemarketpriceofourClassAcommonstock.

EachshareofClassAcommonstockandeachshareofClassBcommonstockhasonevotepershareonallmattersexceptforthefollowingmatters,forwhicheachshareofourClassBcommonstockhastenvotespershareandeachshareofourClassAcommonstockhasonevotepershare:

• adoptionofamergerorconsolidationagreementinvolvingIronwood;

• asaleofallorsubstantiallyallofIronwood'sassets;

• adissolutionorliquidationofIronwood;and

• everymatter,ifandwhenanyindividual,entityor"group"(asthattermisusedinRegulation13DoftheExchangeAct)has,orhaspubliclydisclosed(throughapressreleaseorafilingwiththeSEC)anintenttohave,beneficialownershipof30%ormoreofthenumberofoutstandingsharesofClassAcommonstockandClassBcommonstock,combined.

If we identify a material weakness in our internal control over financial reporting, it could have an adverse effect on our business and financial results and ourability to meet our reporting obligations could be negatively affected, each of which could negatively affect the trading price of our Class A common stock.

Amaterialweaknessisadeficiency,oracombinationofdeficiencies,ininternalcontroloverfinancialreporting,suchthatthereisareasonablepossibilitythatamaterialmisstatementofourannualorinterimfinancialstatementswillnotbepreventedordetectedonatimelybasis.Accordingly,amaterialweaknessincreasestheriskthatthefinancialinformationwereportcontainsmaterialerrors.

Weregularlyreviewandupdateourinternalcontrols,disclosurecontrolsandprocedures,andcorporategovernancepolicies.Inaddition,wearerequiredundertheSarbanes-OxleyActof2002toreportannuallyonourinternalcontroloverfinancialreporting.Oursystemofinternalcontrols,howeverwelldesignedandoperated,isbasedinpartoncertainassumptionsandincludeselementsthatrelyoninformationfromthirdparties,includingourcollaborationpartners.Oursystemcanprovideonlyreasonable,notabsolute,assurancesthattheobjectivesofthesystemaremet.Ifwe,orourindependentregisteredpublicaccountingfirm,determinethatourinternalcontrolsoverfinancialreportingarenoteffective,orwediscoverareasthatneedimprovementinthefuture,theseshortcomingscouldhaveanadverseeffectonourbusinessandfinancialresults,andthepriceofourClassAcommonstockcouldbenegativelyaffected.

Further,wearedependentonourcollaborationpartnersforinformationrelatedtoourresultsofoperations.OurnetprofitornetlossgeneratedfromthesalesofLINZESSintheU.S.ispartiallydeterminedbasedonamountsprovidedbyAllerganandinvolvestheuseofestimatesandjudgments,whichcouldbemodifiedinthefuture.Wearealsohighlydependentonourpartnersfortimelyandaccurateinformationregardinganyrevenuesrealizedfromsalesoflinaclotideintheirrespectiveterritories,andinthecaseofAllerganfortheU.S.andAstraZenecaforChina,HongKongandMacau,thecostsincurredindevelopingandcommercializingitinordertoaccuratelyreportourresultsofoperations.Ourresultsofoperationsarealsodependentonthetimelinessandaccuracyofinformationfromanyotherlicensing,collaborationorotherpartnerswemayhave,aswellasourandourpartners'useofestimatesandjudgments.Ifwedonotreceivetimelyandaccurateinformationorifestimatedactivitylevelsassociatedwiththerelevantcollaborationatagivenpointintimeareincorrect,whethertheresultofamaterialweaknessornot,wecouldberequiredtorecordadjustments

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infutureperiods.Suchadjustments,ifsignificant,couldhaveanadverseeffectonourfinancialresults,whichcouldleadtoadeclineinourClassAcommonstockprice.

Ifwecannotconcludethatwehaveeffectiveinternalcontroloverourfinancialreporting,orifourindependentregisteredpublicaccountingfirmisunabletoprovideanunqualifiedopinionregardingtheeffectivenessofourinternalcontroloverfinancialreporting,investorscouldloseconfidenceinthereliabilityofourfinancialstatements,whichcouldleadtoadeclineinourstockprice.Failuretocomplywithreportingrequirementscouldalsosubjectustosanctionsand/orinvestigationsbytheSEC,TheNASDAQStockMarketorotherregulatoryauthorities.

We expect that the price of our Class A common stock will fluctuate substantially.

ThemarketpriceofourClassAcommonstockmaybehighlyvolatileduetomanyfactors,including:

• thecommercialperformanceoflinaclotideintheU.S.,theE.U.andtheothercountrieswhereitisapproved;

• anythird-partycoverageandreimbursementpoliciesforlinaclotide;

• marketconditionsinthepharmaceuticalandbiotechnologysectors;

• developments,litigationorpublicconcernaboutthesafetyoflinaclotideorourpotentialproducts;

• announcementsoftheintroductionofnewproductsbyusorourcompetitors;

• announcementsconcerningproductdevelopmentresults,includingclinicaltrialresults,orintellectualpropertyrightsofusorothers;

• actualandanticipatedfluctuationsinourquarterlyandannualoperatingresults;

• deviationsinouroperatingresultsfromanyguidancewemayprovideortheestimatesofsecuritiesanalysts;

• salesofadditionalsharesofourcommonstockorsalesofsecuritiesconvertibleintocommonstockortheperceptionthatthesesalesmightoccur;

• additionsordeparturesofkeypersonnel;

• developmentsconcerningcurrentorfuturecollaboration,partnership,licensingorotherstrategicarrangements;and

• discussionofusorourstockpriceinthefinancialorscientificpressorinonlineinvestorcommunities.

Therealizationofanyoftherisksdescribedinthese"RiskFactors"couldhaveadramaticandmaterialadverseimpactonthemarketpriceofourClassAcommonstock.Inaddition,classactionlitigationhasoftenbeeninstitutedagainstcompanieswhosesecuritieshaveexperiencedperiodsofvolatility.Anysuchlitigationbroughtagainstuscouldresultinsubstantialcostsandadiversionofmanagementattention,whichcouldhurtourbusiness,operatingresultsandfinancialcondition.

Item1B.Unresolved Staff Comments

None.

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Item2.Properties

OurcorporateheadquartersandoperationsarelocatedinCambridge,Massachusetts,where,asofDecember31,2015,weoccupyapproximately205,000squarefeetofofficeandlaboratoryspace.Weleaseapproximately312,000squarefeetofofficeandlaboratoryspaceatourCambridge,MassachusettsfacilityunderourleaseexpiringinJanuary2018.In2014,webegansubleasingapproximately107,000squarefeetofourtotalleasedspacetothirdpartiesundersubleasesexpiringin2016and2018.Webelievethatourfacilitiesaresuitableandadequateforourneedsfortheforeseeablefuture.

Item3.Legal Proceedings

None.

Item4.Mine Safety Disclosures

Notapplicable.

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PARTII

Item5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

SharesofourClassAcommonstockaretradedontheNASDAQGlobalSelectMarketunderthesymbol"IRWD."OurshareshavebeenpubliclytradedsinceFebruary3,2010.ThefollowingtablefurnishesthehighandlowsalespricesforourClassAcommonstockasreportedbyTheNASDAQGlobalSelectMarketforeachquarterintheyearsendedDecember31,2015and2014:

AsofFebruary12,2016,therewere51stockholdersofrecordofourClassAcommonstockand78stockholdersofrecordofourClassBcommonstock.Thenumberofrecordholdersisbasedupontheactualnumberofholdersregisteredonthebooksofthecompanyatsuchdateanddoesnotincludeholdersofsharesin"streetnames"orpersons,partnerships,associations,corporationsorotherentitiesidentifiedinsecuritypositionlistingsmaintainedbydepositories.

Subjecttopreferencesthatmayapplytoanysharesofpreferredstockoutstandingatthetime,theholdersofClassAcommonstockandClassBcommonstockareentitledtoshareequallyinanydividendsthatourboardofdirectorsmaydeterminetoissuefromtimetotime.Intheeventadividendispaidintheformofsharesofcommonstockorrightstoacquiresharesofcommonstock,theholdersofClassAcommonstockwillreceiveClassAcommonstock,orrightstoacquireClassAcommonstock,asthecasemaybe,andtheholdersofClassBcommonstockwillreceiveClassBcommonstock,orrightstoacquireClassBcommonstock,asthecasemaybe.

Wehaveneverdeclaredorpaidanycashdividendsonourcapitalstock,andwedonotcurrentlyanticipatedeclaringorpayingcashdividendsonourcapitalstockintheforeseeablefuture.Wecurrentlyintendtoretainallofourfutureearnings,ifany,tofinanceoperations.Anyfuturedeterminationrelatingtoourdividendpolicywillbemadeatthediscretionofourboardofdirectorsandwilldependonanumberoffactors,includingfutureearnings,capitalrequirements,financialconditions,futureprospects,contractualrestrictionsandcovenantsandotherfactorsthatourboardofdirectorsmaydeemrelevant.

TheinformationrequiredtobedisclosedbyItem201(d)ofRegulationS-K,"SecuritiesAuthorizedforIssuanceUnderEquityCompensationPlans,"isreferencedunderItem12ofPartIIIofthisAnnualReportonForm10-Kandincorporatedherein.

Corporate Performance Graph

Thefollowingperformancegraphandrelatedinformationshallnotbedeemedtobe"solicitingmaterial"ortobe"filed"withtheSEC,norshallsuchinformationbeincorporatedbyreferenceintoanyfuturefilingundertheSecuritiesActof1933,asamended,ortheSecuritiesAct,excepttotheextentthatwespecificallyincorporateitbyreferenceintosuchfiling.

ThefollowinggraphcomparestheperformanceofourClassAcommonstocktotheNASDAQBenchmarkTRIndex(U.S.)andtotheNASDAQPharmaceuticalBenchmarkTRIndex(U.S.)fromFebruary3,2010(thefirstdatethatsharesofourClassAcommonstockwerepubliclytraded)throughDecember31,2015.Thecomparisonassumes$100wasinvestedafterthemarketclosedonFebruary3,

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ClassACommonStock 2015 2014 High Low High Low FirstQuarter $ 17.11 $ 14.18 $ 15.47 $ 11.22SecondQuarter $ 16.17 $ 11.57 $ 15.83 $ 9.01ThirdQuarter $ 12.36 $ 9.77 $ 15.95 $ 11.97FourthQuarter $ 12.62 $ 10.05 $ 15.62 $ 11.65

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2010inourClassAcommonstockandineachofthepresentedindices,anditassumesreinvestmentofdividends,ifany.

COMPARISONOFQUARTERLYCUMULATIVETOTALRETURNAmongTheNASDAQBenchmarkTRIndex(U.S.),

theNASDAQPharmaceuticalBenchmarkTRIndex(U.S.)andIronwoodPharmaceuticals,Inc.

Item6.Selected Consolidated Financial Data

YoushouldreadthefollowingselectedfinancialdatatogetherwithourconsolidatedfinancialstatementsandtherelatednotesappearingelsewhereinthisAnnualReportonForm10-K.WehavederivedtheconsolidatedstatementsofoperationsdatafortheyearsendedDecember31,2015,2014and2013andtheconsolidatedbalancesheetdataasofDecember31,2015and2014fromourauditedfinancialstatementsincludedelsewhereinthisAnnualReportonForm10-K.WehavederivedtheconsolidatedstatementsofoperationsdatafortheyearsendedDecember31,2012and2011andtheconsolidatedbalancesheetdataasofDecember31,2013,2012and2011fromourauditedfinancial

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statementsnotincludedinthisAnnualReportonForm10-K.Ourhistoricalresultsforanypriorperiodarenotnecessarilyindicativeofresultstobeexpectedinanyfutureperiod.

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YearsEndedDecember31, 2015 2014 2013 2012 2011 (inthousands,exceptpersharedata) ConsolidatedStatementofOperationsData: Collaborativearrangementsrevenue(1) $ 149,555 $ 76,436 $ 22,881 $ 150,245 $ 65,871Costandexpenses: Costofrevenue 12 5,291 7,203 965 —Write-downofinventorytonetrealizablevalueandlossonnon-cancellablepurchasecommitments(2) 17,638 20,292 — — —

Researchanddevelopment(3) 108,746 101,890 102,378 113,474 86,093Selling,generalandadministrative(3) 125,247 118,333 123,228 92,538 45,920Collaborationexpense(4) — — 42,074 16,030 —

Totalcostandexpenses 251,643 245,806 274,883 223,007 132,013Lossfromoperations (102,088) (169,370) (252,002) (72,762) (66,142)

Other(expense)income: Interestexpense (31,096) (21,166) (21,002) (59) (63)Interestandinvestmentincome 443 257 192 197 456Lossonderivatives(5) (9,928) — — — —Otherincome — 661 — — 900

Other(expense)income,net (40,581) (20,248) (20,810) 138 1,293Netlossbeforeincometaxexpense (142,669) (189,618) (272,812) (72,624) (64,849)Incometaxexpense — — — — 3Netloss $ (142,669) $ (189,618) $ (272,812) $ (72,624) $ (64,852)Netlosspershare—basicanddiluted $ (1.00) $ (1.39) $ (2.35) $ (0.68) $ (0.65)

Weightedaveragenumberofcommonsharesusedinnetlosspershare—basicanddiluted: 142,155 136,811 115,852 106,403 99,875

(1) CollaborativearrangementsrevenuefortheyearendedDecember31,2014includesapproximately$10.2millionrelatedtothereceiptofamilestonepaymentunderourlicenseagreementwithAstellasfortheenrollmentofthefirststudysubjectinaPhaseIIIstudyforlinaclotideinJapan,whichwasachievedinNovember2014,andalsoincludesapproximately$1.9millioninpaymentsfromAlmirallrelatedtotheachievementoftwocommercialmilestonesunderthelicenseagreementwithAlmirall.

CollaborativearrangementsrevenuefortheyearendedDecember31,2013includesapproximately$1.9millioninpaymentsfromAlmirallrelatedtotheachievementoftwomilestonesunderthelicenseagreementwithAlmirall.

CollaborativearrangementsrevenuefortheyearendedDecember31,2012includesan$85.0millionmilestonepaymentreceivedfromAllerganunderthecollaborationagreementforNorthAmericafortheachievementoftwodevelopmentmilestonesupontheFDA'sapprovalofthelinaclotideNDAforbothIBS-CandCIC.

CollaborativearrangementsrevenuefortheyearendedDecember31,2011includesa$20.0millionmilestonepaymentreceivedfromAllerganunderthecollaborationagreementfor

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NorthAmericafortheachievementoftwodevelopmentmilestonesupontheFDA'sacceptanceofthelinaclotideNDAforbothIBS-CandCIC.

(2) DuringtheyearendedDecember31,2015,werecordedexpensesofapproximately$17.6millionforthewrite-downofinventoryandanaccrualforexcessnon-cancelableinventorypurchasecommitmentsrelatedtolinaclotideAPI.ThesechargesprimarilyrelatedtoareductionintheneartermdemandforecastforCONSTELLAintheEuropeanterritorybyAlmirall,ourformerEuropeanpartner;recentregulatorychangesmadebytheChinaFoodandDrugAdministrationtothemarketingapprovalprocessinChina;andtheamendmenttothelicenseagreementwithAllerganpertainingtothedevelopmentandcommercializationoflinaclotideforEuropeexecutedinOctober2015.Pursuanttothetermsoftheamendment,AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEurope,aswellastheassociatedcosts,whichresultedinaccruingforalossonnon-cancelableinventorypurchasecommitmentsunderoneofourAPIsupplyagreementscoveringthecommercialsupplyoflinaclotideAPIfortheEuropeanmarket.

DuringtheyearendedDecember31,2014,werecordedapproximately$20.3millionasawrite-downofinventorytoanestimatednetrealizablevalueofapproximately$5.0million.Thiswrite-downwasprimarilyattributabletoAlmirall'sreducedinventorydemandforecastsfortheEuropeanterritory,mainlyduetothesuspensionofcommercializationofCONSTELLAinGermanyandachallengingcommercialenvironmentthroughoutEurope.

ThesechargesaremorefullydescribedinNote7,Inventory,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

(3) DuringtheyearendedDecember31,2014,werecordedapproximately$4.2millionofcostsrelatedtoareductioninworkforceinthethreemonthsendedMarch31,2014,includingemployeeseverance,benefitsandrelatedcostsandadjustments.ThesecostsarereflectedinourConsolidatedStatementofOperationsfortheyearendedDecember31,2014asapproximately$3.0millioninresearchanddevelopmentexpensesandapproximately$1.2millioninselling,generalandadministrativeexpenses.

(4) CollaborationexpensefortheyearendedDecember31,2011isincludedinselling,generalandadministrativeexpenseandwasnotmaterial.

(5) LossonderivativesconsistsofthechangeinfairvalueofourConvertibleNoteHedgesandNoteHedgeWarrants,whicharerecordedasderivativeassetsandliabilities.TheConvertibleNoteHedgesandtheNoteHedgeWarrantsarerecordedatfairvalueateachreportingperiodandchangesinfairvaluearerecordedinourconsolidatedstatementsofoperations.TheConvertibleNoteHedgesandNoteHedgeWarrantsaremorefullydescribedinNote5,FairValueofFinancialInstruments,andNote10,NotesPayable,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

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Item7.Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-LookingInformation

ThefollowingdiscussionofourfinancialconditionandresultsofoperationsshouldbereadinconjunctionwithourconsolidatedfinancialstatementsandthenotestothosefinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.Thisdiscussioncontainsforward-lookingstatementsthatinvolvesignificantrisksanduncertainties.Asaresultofmanyfactors,suchasthosesetforthunder"RiskFactors"inItem1AofthisAnnualReportonForm10-K,ouractualresultsmaydiffermateriallyfromthoseanticipatedintheseforward-lookingstatements.

Overview

Weareacommercialbiotechnologycompanyleveragingourprovendevelopmentandcommercialcapabilitiesasweseektobringmultiplemedicinestopatients.Weareadvancingtwotherapeuticplatforms,whichincludeproductopportunitiesinareasoflargeunmetneed,includingirritablebowelsyndromewithconstipation,orIBS-C,andchronicidiopathicconstipation,orCIC,vascularandfibroticdiseases,andrefractorygastroesophagealrefluxdisease,orGERD.

Ourfirstandto-dateonlycommercialproduct,linaclotide,isavailabletoadultmenandwomensufferingfromIBS-CorCICintheUnitedStates,ortheU.S.,underthetrademarkednameLINZESS®,andisavailabletoadultmenandwomensufferingfromIBS-CincertainEuropean

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YearsEndedDecember31, 2015 2014 2013 2012 2011 (inthousands) ConsolidatedBalanceSheetData: Cash,cashequivalentsandavailable-for-salesecurities $ 439,394 $ 248,334 $ 197,602 $ 168,228 $ 164,016Workingcapital(excludingdeferredrevenue)(1) 430,931 234,957 191,636 132,883 138,724Totalassets(1) 619,121 329,322 273,292 229,907 208,977Deferredrevenue,includingcurrentportion 8,989 16,180 16,490 21,405 57,421Debtfinancingandconvertiblenotes,includingcurrentportion(1) 378,548 169,405 169,002 — —

Capitalleaseobligations,includingcurrentportion 2,937 3,723 4,273 569 655Totalliabilities(1) 523,996 240,770 235,067 85,855 99,121Totalstockholders'equity 95,125 88,552 38,225 144,052 109,856

(1) InApril2015,theFinancialAccountingStandardsBoardissuedAccountingStandardsUpdateNo.2015-03,SimplifyingthePresentationofDebtIssuanceCosts,orASU2015-03.ASU2015-03requiresdebtissuancecoststobepresentedinanentity'sbalancesheetasadirectdeductionfromtheassociateddebtliability.

WeelectedearlyadoptionofASU2015-03inthethreemonthsendedJune30,2015,whichresultedinabalancesheetreclassificationofissuancecostsinconnectionwithour11%PhaRMANotesdue2024ofapproximately$1.4millionrecordedinprepaidexpensesandothercurrentassetsandapproximately$2.8millioninotherassetstoareductioninPhaRMANotespayableasofDecember31,2014,andapproximately$1.5millionrecordedinprepaidexpensesandothercurrentassetsandapproximately$4.1millioninotherassetstoareductioninPhaRMANotespayableasofDecember31,2013.Thefinancingcostsincurredinconnectionwiththeissuanceofour2.25%ConvertibleSeniorNotesdueJune15,2022,orthe2022Notes,wererecordedasareductioninthecarryingvalueofsuchdebtinaccordancewithASU2015-03.ASU2015-03ismorefullydescribedinNote2,SummaryofSignificantAccountingPolicies,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

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countriesunderthetrademarkednameCONSTELLA®.WeandourU.S.partnerAllerganplc(togetherwithitsaffiliates),orAllergan(formerlyActavisplc),begancommercializingLINZESSintheU.S.inDecember2012.UnderourcollaborationwithAllerganforNorthAmerica,totalnetsalesofLINZESSintheU.S.,asrecordedbyAllergan,arereducedbycommercialcostsincurredbyeachparty,andtheresultingamountissharedequallybetweenusandAllergan.

OurformerEuropeanpartner,Almirall,S.A.,orAlmirall,begancommercializingCONSTELLAinEuropeforthesymptomatictreatmentofmoderatetosevereIBS-Cinadultsinthesecondquarterof2013.InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,andweandAllerganenteredintoanamendmenttotheEuropeanlicenseagreementtomodifytheremainingsales-basedmilestonesandroyaltiespayabletousandtoprovideforAllergan'sassumptionofresponsibilityfor,andcostof,themanufacturingoflinaclotideactivepharmaceuticalingredient,orAPI,forEuropefromus.Thisamendment,togetherwiththetransferoftheEuropeanlicenseforlinaclotidefromAlmiralltoAllergan,ismorefullydescribedinNote4,Collaboration,LicenseandCo-promotionAgreements,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.Currently,CONSTELLAiscommerciallyavailableincertainEuropeancountries,includingtheUnitedKingdom,ItalyandSpain.

Withinourgastrointestinal,orGI,platform,weandAllerganareexploringdevelopmentopportunitiestoenhancetheclinicalprofileofLINZESSbyseekingtoexpanditsutilitywithinIBS-CandCIC,aswellasstudyinglinaclotideinadditionalindicationsandpopulationstoassessitspotentialtotreatvariousGIconditions.InOctober2015,aspartofthisstrategy,wereportedpositivetop-linedatafromaPhaseIIIclinicaltrialintheU.S.withAllerganevaluatinga72mcgdoseoflinaclotideinadultpatientswithCIC.Webelievethesedatasupportthesubmissionofasupplementalnewdrugapplication,orsNDA,totheFDAforapprovaltomarketthe72mcgdoseoflinaclotideintheU.S.Ifapproved,the72mcgdosewouldprovideabroaderrangeoftreatmentoptionstophysiciansandadultCICpatientsintheU.S.Linaclotideisalsobeingdevelopedandcommercializedinotherpartsoftheworldbycertainofourpartners.

WeandAllerganarealsodevelopinglinaclotidecolonicrelease,atargetedoraldeliveryformulationoflinaclotidedesignedtopotentiallyimproveabdominalpainreliefinadultIBS-Cpatients.InadditiontoIBS-C,weareexploringlinaclotidecolonicreleaseforuseinadditionalGIdisorderswherelowerabdominalpainisapredominantsymptom,includingIBS-mixed,orIBS-M,ulcerativecolitisanddiverticulitis,amongothers.

WearealsoadvancingotherGIdevelopmentprogramsformultipleindications.Forexample,weareinvestigatingIW-3718,agastricretentiveformulationofabileacidsequestrantthatisbeingevaluatedforthepotentialtreatmentofrefractoryGERD.WearealsoinvestigatingIW-9179,aguanylatecyclasetype-C,orGC-C,agonistdesignedtotargetupperGIconditions,forthetreatmentofgastroparesisandfunctionaldyspepsia.

Withinourvascular/fibroticplatform,weareleveragingourpharmacologicalexpertiseinguanylatecyclase,orGC,pathwaysgainedthroughthediscoveryanddevelopmentoflinaclotidetoadvancedevelopmentprogramstargetingsolubleguanylatecyclase,orsGC.sGCisavalidatedmechanismwiththepotentialforbroadtherapeuticutilityandmultipleopportunitiesforproductdevelopmentinvascularandfibroticdiseases,aswellasothertherapeuticareas.Todate,wehaveidentifiedtwosGCdevelopmentcandidates,IW-1973andIW-1701,whichhavedistinctpharmacologicprofilesthatwebelievemaybedifferentiatingandenableopportunitiesinmultipleindications.

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Aspartofourstrategy,wehavealsoestablisheddevelopmentandcommercialcapabilitiesthatweplantoleverageasweseektobringmultiplemedicinestopatients.WeintendtoplayanactiveroleinthedevelopmentandcommercializationofourinternallydevelopedproductsintheU.S.,andtoestablishastrongglobalbrandbyout-licensingcommercializationrightsinotherterritoriestohigh-performingpartners.InadditiontotheU.S.andEurope,wehaveenteredintopartnershipstodevelopandcommercializelinaclotideinotherpartsoftheworld.

InDecember2013andFebruary2014,linaclotidewasapprovedinCanadaandMexico,respectively,asatreatmentforadultwomenandmensufferingfromIBS-CorCIC.AllerganhasexclusiverightstocommercializelinaclotideinCanadaasCONSTELLAand,throughasublicensefromAllergan,AlmirallhadexclusiverightstocommercializelinaclotideinMexicoasLINZESS.InMay2014,AllerganbegancommercializingCONSTELLAinCanadaandinJune2014,AlmirallbegancommercializingLINZESSinMexico.InOctober2015,AlmirallandAllerganterminatedthesublicensearrangementwithrespecttoMexico,returningtheexclusiverightstocommercializeCONSTELLAinMexicotoAllergan.CONSTELLAcontinuestobeavailabletoadultIBS-CpatientsinMexico.

AstellasPharmaInc.,orAstellas,ourpartnerinJapan,isdevelopinglinaclotideforthetreatmentofpatientswithIBS-Candchronicconstipationinitsterritory.InNovember2015,weandAstellasreportedpositivetop-linedatafromAstellas'PhaseIIIclinicaltrialoflinaclotideinadultpatientswithIBS-CforJapan.Webelievethesedatasupportthesubmissionofanewdrugapplication,orNDA,totheMinistryofHealth,LaborandWelfareforapprovaltomarketlinaclotideinJapan.InOctober2012,weenteredintoacollaborationagreementwithAstraZenecaAB,orAstraZeneca,toco-developandco-commercializelinaclotideinChina,HongKongandMacau,withAstraZenecahavingprimaryresponsibilityforthelocaloperationalexecution.InDecember2015,weandAstraZenecafiledforapprovalwiththeChinaFoodandDrugAdministration,orCFDA,tomarketlinaclotideinChina.WecontinuetoassessalternativestobringlinaclotidetoIBS-CandCICsufferersinthepartsoftheworldoutsideofourpartneredterritories.

InMarch2015,weandExactSciencesCorp,orExactSciences,enteredintoanagreementtoco-promoteCologuard®,thefirstandonlyFDA-approvednoninvasivestoolDNAscreeningtestforcolorectalcancer.Underthetermsoftheagreement,oursalesteamispromotingandeducatinghealthcarepractitionersregardingCologuard.Wearealsocollaboratingonmedicaleducationinitiativestosupportmorein-depthunderstandingofCologuardandtheimportanceofcolorectalcancerscreening.ExactSciencesmaintainsresponsibilityforallotheraspectsofthecommercializationofCologuardoutsideoftheco-promotion.Wearecompensatedviareimbursementsforsalesdetailing,promotionalsupportservicesandmedicaleducationinitiatives.WealsoearnroyaltiesonthenetsalesofCologuardgeneratedfromthehealthcarepractitionersonwhomwecalllessthesalespromotionreimbursementtous.

InAugust2015,weandAllerganenteredintoanagreementfortheco-promotionofVIBERZI™(eluxadoline)intheU.S.,Allergan'streatmentforadultssufferingfromIBSwithdiarrhea,orIBS-D.Underthetermsoftheagreement,ourclinicalsalesspecialistsaredetailingVIBERZItotheapproximately25,000healthcarepractitionerstowhomtheydetailLINZESS.AllerganisresponsibleforallcostsandactivitiesrelatingtothecommercializationofVIBERZIoutsidetheco-promotion.Ourpromotionaleffortsarecompensatedbasedonthevolumeofcallsdeliveredbyoursalesforce,withthetermsoftheagreementreducingoreliminatingcertainoftheunfavorableadjustmentstotheshareofnetprofitsstipulatedbythelinaclotidecollaborationagreementwithAllerganforNorthAmerica,providedthatwedeliveraminimumnumberofVIBERZIcallsonphysicians.Wearealsocompensatedviareimbursementformedicaleducationinitiatives.

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InNovember2015,AllerganandPfizerInc.enteredintoadefinitiveagreementprovidingforthecombinationofthetwocompanies.Ourcollaborationforthedevelopmentandcommercializationoflinaclotide,aswellasouragreementtoco-promoteVIBERZI,remainsineffect.

InJanuary2013,weclosedaprivateplacementof$175.0millioninaggregateprincipalamountof11%PhaRMANotesdue2024,orthePhaRMANotes.Asaresultofthedebtoffering,wereceivedaggregatenetproceeds,afterofferingexpenses,ofapproximately$167.3million.Duringthesecondquarterof2013,wesold11,204,948sharesofourClassAcommonstockthroughafirmcommitment,underwrittenpublicofferingatapricetothepublicof$13.00pershare.Asaresultoftheoffering,wereceivedaggregatenetproceeds,afterunderwritingdiscountsandcommissionsandotherofferingexpenses,ofapproximately$137.8million.InFebruary2014,wesold15,784,325sharesofourClassAcommonstockthroughafirmcommitment,underwrittenpublicofferingatapricetothepublicof$12.75pershare.Asaresultofthisoffering,wereceivedaggregatenetproceeds,afterunderwritingdiscountsandcommissionsandotherofferingexpenses,ofapproximately$190.4million.InJune2015,weissuedapproximately$335.7millioninaggregateprincipalamountof2.25%ConvertibleSeniorNotesdue2022,orthe2022Notes.Wereceivednetproceedsofapproximately$324.0millionfromthesaleofthe2022Notes,afterdeductingfeesandexpensesofapproximately$11.7million.ThenetproceedsfromthesefinancingsarebeingusedtosupportthecommercializationofLINZESSintheU.S.andtofundlinaclotideandotherdevelopmentopportunitiestoadvanceourstrategytogrowaleadingcommercialbiotechnologycompany,inadditiontoothergeneralcorporatepurposes.

WewereincorporatedinDelawareonJanuary5,1998asMicrobia,Inc.OnApril7,2008,wechangedournametoIronwoodPharmaceuticals,Inc.Wecurrentlyoperateinonereportablebusinesssegment—humantherapeutics.

Todate,wehavededicatedsubstantiallyallofouractivitiestotheresearch,developmentandcommercializationoflinaclotide,aswellastotheresearchanddevelopmentofourotherproductcandidates.Wehaveincurredsignificantoperatinglossessinceourinceptionin1998.AsofDecember31,2015,wehadanaccumulateddeficitofapproximately$1.1billion.Weareunabletopredicttheextentofanyfuturelossesorguaranteewhen,orif,ourcompanywillbecomecashflowpositive.

FinancialOverview

Revenue.RevenuetodatehasbeengeneratedprimarilythroughourcollaborationagreementsforthedevelopmentandcommercializationoflinaclotidewithAllerganforNorthAmericaandAstraZenecaforChina,HongKongandMacau,ourlicenseagreementsforthedevelopmentandcommercializationoflinaclotideinJapanwithAstellasandthedevelopmentandcommercializationoflinaclotideinEuropewithAllergan(formerlywithAlmirall),andourco-promotionagreementswithAllerganforVIBERZIandExactSciencesforCologuardintheU.S.Thetermsoftheseagreementscontainmultipledeliverableswhichmayinclude(i)licenses,(ii)researchanddevelopmentactivities,(iii)themanufactureoffinisheddrugproduct,APIordevelopmentmaterialsforapartnerwhicharereimbursedatacontractuallydeterminedrate,and(iv)co-promotionactivitiesbyourclinicalsalesspecialists.Paymentstousmayinclude(i)up-frontlicensefees,(ii)paymentsforresearchanddevelopmentactivities,(iii)paymentsforthemanufactureoffinisheddrugproduct,APIordevelopmentmaterials,(iv)paymentsbasedupontheachievementofcertainmilestones,(v)paymentsforsalesdetailing,promotionalsupportservicesandmedicaleducationinitiativesand(vi)royaltiesonproductsales.Additionally,wereceiveourshareofthenetprofitsorbearourshareofthenetlossesfromthesaleoflinaclotideintheU.S.andChina.LINZESSlaunchedintheU.S.inDecember2012andCONSTELLAbecamecommerciallyavailableincertainEuropeancountriesbeginninginthesecondquarterof2013.Linaclotideisalsoapprovedinanumberofothercountries.

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WerecordourshareofthenetprofitsandlossesfromthesalesofLINZESSintheU.S.onanetbasisandpresentthesettlementpaymentstoandfromAllerganascollaborationexpenseorcollaborativearrangementsrevenue,asapplicable.Netprofitsorlossesconsistofnetsalestothird-partycustomersandsublicenseincomeintheU.S.lessthecostofgoodssoldaswellasselling,generalandadministrativeexpenses.Althoughweexpectnetsalestoincreaseovertime,thesettlementpaymentsbetweenAllerganandus,resultingincollaborativearrangementsrevenueorcollaborationexpense,aresubjecttofluctuationbasedontheratioofselling,generalandadministrativeexpensesincurredbyeachparty.Inaddition,ourcollaborativearrangementsrevenuemayfluctuateasaresultofthetimingandamountoflicensefeesandclinicalandcommercialmilestonesreceivedandrecognizedunderourcurrentandfuturestrategicpartnershipsaswellastimingandamountofroyaltiesfromthesalesoflinaclotideintheEuropean,CanadianorMexicanmarketsoranyothermarketswherelinaclotidereceivesapproval.InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan.ConcurrentlywiththeEuropeanlicensetransfer,AlmirallandAllerganterminatedthesublicensearrangementwithrespecttoMexico,returningtheexclusiverightstocommercializeCONSTELLAinMexicotoAllergan.CONSTELLAcontinuestobeavailabletoadultIBS-CpatientsinMexico.Additionally,asdescribedabove,inOctober2015weandAllerganseparatelyenteredintoanamendmenttothelicenseagreementrelatingtothedevelopmentandcommercializationoflinaclotideinEurope.ThisamendmentismorefullydescribedinNote4,Collaboration,LicenseandCo-promotionAgreements,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

CostofRevenue.CostofrevenueisrecognizeduponshipmentoflinaclotideAPItocertainofourlicensingpartnersoutsideoftheU.S.OurcostofrevenueconsistsoftheinternalandexternalcostsofproducingsuchAPI.

Write-downofinventorytonetrealizablevalueandlossonnon-cancelablepurchasecommitments.DuringtheyearendedDecember31,2015,werecordedexpensesofapproximately$17.6millionforthewrite-downofinventoryandanaccrualforexcessnon-cancelableinventorypurchasecommitmentsrelatedtolinaclotideAPI.ThesechargesprimarilyrelatedtoareductionintheneartermdemandforecastforCONSTELLAintheEuropeanterritorybyAlmirall;recentregulatorychangesmadebytheCFDAtothemarketingapprovalprocessinChina;andtheamendmenttothelicenseagreementwithAllerganpertainingtothedevelopmentandcommercializationoflinaclotideforEuropeexecutedinOctober2015.Pursuanttothetermsoftheamendment,AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEurope,aswellastheassociatedcosts,whichresultedinaccruingforalossonnon-cancelableinventorypurchasecommitmentsduringthethreemonthsendedSeptember30,2015,underoneofourAPIsupplyagreementscoveringthecommercialsupplyoflinaclotideAPIfortheEuropeanmarket.WehaveevaluatedallremainingminimumpurchasecommitmentsunderourlinaclotideAPIsupplyagreementsthrough2023andconcludedthattheapproximately$22.3millionofpurchasecommitmentsfromthesecondAPIsupplyagreementcoveringtheJapan,China,HongKongandMacaumarketsarerealizablebasedonthecurrentforecastsreceivedfromourpartnersintheseterritoriesandourinternalforecasts.

DuringtheyearendedDecember31,2014,wewrotedownapproximately$20.3millionininventorytoanestimatednetrealizablevalueofapproximately$5.0million.ThiswritedownwasprimarilyattributabletoAlmirall'sreducedinventorydemandforecasts,mainlyduetothesuspensionofcommercializationofCONSTELLAinGermanyandachallengingcommercialenvironmentthroughoutEurope.

ThesechargesaremorefullydescribedinNote7,Inventory,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

ResearchandDevelopmentExpense.Researchanddevelopmentexpenseconsistsofexpensesincurredinconnectionwiththediscoveryanddevelopmentofourproductcandidates.Theseexpenses

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consistprimarilyofcompensation,benefitsandotheremployee-relatedexpenses,researchanddevelopmentrelatedfacilitycosts,third-partycontractcostsrelatingtononclinicalstudyandclinicaltrialactivities,developmentofmanufacturingprocesses,regulatoryregistrationofthird-partymanufacturingfacilities,aswellaslicensingfeesforourproductcandidates.Wechargeallresearchanddevelopmentexpensestooperationsasincurred.UnderourcollaborationagreementswithAllerganfortheU.S.andAstraZenecaforChina,HongKongandMacau,wearereimbursedforcertainresearchanddevelopmentexpenses,andwenetthesereimbursementsagainstourresearchanddevelopmentexpensesasincurred.PaymentstoAllerganorAstraZenecaforsuchterritoriesarerecordedasincrementalresearchanddevelopmentexpense.

ThecoreofourresearchanddevelopmentstrategyistoleverageourdevelopmentcapabilitiesinaddressingGIdisordersaswellasourpharmacologicexpertiseinGCpathwaystobringmultiplemedicinestopatients.Weareadvancingmultipleproductopportunitieswithintwocoretherapeuticplatforms:GIandvascular/fibroticdiseases.

Linaclotide.Ourleadproductislinaclotide,anditrepresentsthelargestportionofourresearchanddevelopmentexpenseforourproductcandidates.Linaclotideisthefirstand,todate,onlyFDA-approvedguanylatecyclasetype-C,orGC-C,agonist.LinaclotideisapprovedintheU.S.andinanumberofE.U.andothercountries.

WeandAllerganareexploringdevelopmentopportunitiesintheU.S.toenhancetheclinicalprofileofLINZESSbyseekingtoexpanditsutilityinitsindicatedpopulations,aswellasstudyinglinaclotideinadditionalindications,populationsandformulationstoassessitspotentialtotreatvariousGIconditions.InOctober2015,aspartofthisstrategy,wereportedpositivetop-linedatafromaPhaseIIIclinicaltrialintheU.S.withAllerganevaluatinga72mcgdoseoflinaclotideinadultpatientswithCIC.Additionally,inNovember2015,theFDAapprovedtheinclusionoflabelinginstructionsinthefullLINZESSPrescribingInformationallowingadultIBS-CandCICpatientswithswallowingdifficultiestheoptiontoadministerthecontentsofLINZESScapsulesinapplesauceorwater.

Ourlinaclotidedevelopmentopportunitiesalsoincludelinaclotidecolonicrelease,atargetedoraldeliveryformulationoflinaclotidedesignedtopotentiallyimproveabdominalpainreliefinadultIBS-Cpatients,aswellasinpatientswithadditionalGIdisorderswherelowerabdominalpainisapredominantsymptom,suchasIBS-M.Additionally,weandAllerganareevaluatinglinaclotideasapotentialtreatmentoftheGIdysfunctionassociatedwithopioid-inducedconstipation,orOIC,inadultpatientsandhaveestablishedaplanwiththeFDAforclinicalpediatricstudieswithlinaclotide,asdescribedbelow.

DevelopmentCandidates.WeareadvancingotherdevelopmentprogramswithinourGIplatformforindicationssuchasrefractoryGERDanddiabeticgastroparesis.ThisincludesIW-9179,aGC-CagonistdesignedtotargetupperGIconditions,whichisbeingexploredforthetreatmentofdiabeticgastroparesisandfunctionaldyspepsia.Additionally,IW-3718isagastricretentiveformulationofabileacidsequestrantthatisbeingevaluatedforthepotentialtreatmentofrefractoryGERD.

Withinourvascular/fibroticplatform,weareleveragingourpharmacologicalexpertiseinGCpathwaysgainedthroughthediscoveryanddevelopmentoflinaclotidetoadvancedevelopmentprogramstargetingsGC.Todate,wehaveidentifiedtwosGCdevelopmentcandidates,IW-1973andIW-1701,whichhavedistinctpharmacologicprofilesthatwebelievemaybedifferentiatingandenableopportunitiesinmultipleindications.Wehaveadditionalassetsinearlydevelopmentthatwecontinuetoadvance,andweareexploringstrategicoptionsforfurtherdevelopmentoftheseassets.

DiscoveryResearch.OurdiscoveryeffortsareprimarilyfocusedonidentifyingnovelclinicalcandidatesthatdrawonourproprietaryandexpandingexpertiseinGIdisordersandGC.

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ThefollowingtablesetsforthourresearchanddevelopmentexpensesrelatedtoourproductpipelinefortheyearsendedDecember31,2015,2014and2013.Theseexpensesrelateprimarilytoexternalcostsassociatedwithnonclinicalstudiesandclinicaltrialcosts,costsincurredtodevelopmanufacturingprocessesandregistermanufacturingfacilitieswiththeFDA,andlicensingfeesforourproductcandidates.Weallocatecostsrelatedtofacilities,depreciation,share-basedcompensation,researchanddevelopmentsupportservices,laboratorysuppliesandcertainothercostsdirectlytoprograms.

Since2004,thedatewebegantrackingcostsbyprogram,wehaveincurredapproximately$355.7millionofresearchanddevelopmentexpensesrelatedtolinaclotide.TheexpensesforlinaclotideincludebothourportionoftheresearchanddevelopmentcostsincurredbyAllerganfortheU.S.andAstraZenecaforChina,HongKongandMacauandinvoicedtousunderthecost-sharingprovisionsofourcollaborationagreements,aswellastheunreimbursedportionofresearchanddevelopmentcostsincurredbyusundersuchcost-sharingprovisions.

Thelengthyprocessofsecuringregulatoryapprovalsfornewdrugsrequirestheexpenditureofsubstantialresources.Anyfailurebyustoobtain,oranydelayinobtaining,regulatoryapprovalswouldmateriallyadverselyaffectourproductdevelopmenteffortsandourbusinessoverall.InAugust2012,theFDAapprovedourNewDrugApplicationsforLINZESSasaonce-dailytreatmentforadultmenandwomensufferingfromIBS-CorCIC.InconnectionwiththeFDAapproval,wearerequiredtoconductcertainnonclinicalandclinicalstudies,includingthoseaimedatunderstanding:(a)whetherorallyadministeredlinaclotidecanbedetectedinbreastmilk,(b)thepotentialforantibodiestobedevelopedtolinaclotide,andifso,(c)whetherantibodiesspecificforlinaclotidecouldhaveanytherapeuticorsafetyimplications.Inaddition,weandAllerganestablishedanonclinicalandclinicalpost-marketingplanwiththeFDAtounderstandtheefficacyandsafetyofLINZESSinpediatricpatients.Thefirststepinthisplanwastoundertakecertainadditionalnonclinicalstudies.WeandAllerganhavecompletedthesenonclinicalstudiesandhaveinitiatedtwoPhaseIIclinicalpediatricstudiesinIBS-Cpatientsagesevento17andfunctionalconstipationpatientsagesixto17.WeandAllerganarealsoexploringdevelopmentopportunitiestoenhancetheclinicalprofileofLINZESSbyseekingtoexpanditsutilitywithinIBS-CandCIC,aswellasstudyinglinaclotideinadditionalindications,populationsandformulationstoassessitspotentialtotreatvariousGIconditions.InOctober2012,weenteredintoacollaborationagreementwithAstraZenecatoco-developandco-commercializelinaclotideinChina,HongKongandMacau,withAstraZenecahavingprimaryresponsibilityforthelocaloperationalexecution.Wecannotcurrentlyestimatewithanydegreeof

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YearsEndedDecember31, 2015 2014 2013 (inthousands)

Linaclotide(1) $ 48,981 $ 48,340 $ 46,048Developmentcandidates: GIdisorders(threecompounds)(2) 19,152 15,992 11,068Vascularandfibroticdisorders(twocompounds)(2) 20,465 11,775 —Centralnervoussystemdisorders(onecompound)(2) 1,653 2,190 14,793Allergicdisorders — — 916

Totaldevelopmentcandidates 41,270 29,957 26,777Discoveryresearch 18,495 23,593 29,553

$ 108,746 $ 101,890 $ 102,378

(1) Includeslinaclotideinallindications,populationsandformulations.

(2) NumberofcompoundsisfortheyearendedDecember31,2015.

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certaintytheamountoftimeormoneythatwewillberequiredtoexpendinthefutureonlinaclotideforothergeographicmarkets,withinitsindicatedpopulationorinadditionalindications,populationsorformulations.WearealsoadvancingmultipleotherGIdevelopmentprogramstargetingdiseasessuchasrefractoryGERDanddiabeticgastroparesis,aswellasdevelopmentprogramswithinourvascular/fibroticplatformtargetingsGC.Giventheinherentuncertaintiesthatcomewiththedevelopmentofpharmaceuticalproducts,wecannotestimatewithanydegreeofcertaintyhowourprogramswillevolve,andthereforetheamountoftimeormoneythatwouldberequiredtoobtainregulatoryapprovaltomarketthem.Asaresultoftheseuncertaintiessurroundingthetimingandoutcomeofanyapprovals,wearecurrentlyunabletoestimatepreciselywhen,ifever,linaclotide'sutilitywillbeexpandedinitsindicatedpopulation;iforwhenlinaclotidewillbedevelopedoutsideofitscurrentmarkets,indications,populationsorformulations;orwhen,ifever,anyofourotherproductcandidateswillgeneraterevenuesandcashflows.

Weinvestcarefullyinourpipeline,andthecommitmentoffundingforeachsubsequentstageofourdevelopmentprogramsisdependentuponthereceiptofclear,supportivedata.Inaddition,weintendtoaccessexternallydiscovereddrugcandidatesthatfitwithinourcorestrategy.Inevaluatingthesepotentialassets,weapplythesameinvestmentcriteriaasthoseusedforinvestmentsininternallydiscoveredassets.

Thesuccessfuldevelopmentofourproductcandidatesishighlyuncertainandsubjecttoanumberofrisksincluding,butnotlimitedto:

• Thedurationofclinicaltrialsmayvarysubstantiallyaccordingtothetype,complexityandnoveltyoftheproductcandidate.

• TheFDAandcomparableagenciesinforeigncountriesimposesubstantialandvaryingrequirementsontheintroductionoftherapeuticpharmaceuticalproducts,typicallyrequiringlengthyanddetailedlaboratoryandclinicaltestingprocedures,samplingactivitiesandothercostlyandtime-consumingprocedures.

• Dataobtainedfromnonclinicalandclinicalactivitiesatanystepinthetestingprocessmaybeadverseandleadtodiscontinuationorredirectionofdevelopmentactivity.Dataobtainedfromtheseactivitiesalsoaresusceptibletovaryinginterpretations,whichcoulddelay,limitorpreventregulatoryapproval.

• Thedurationandcostofdiscovery,nonclinicalstudiesandclinicaltrialsmayvarysignificantlyoverthelifeofaproductcandidateandaredifficulttopredict.

• Thecosts,timingandoutcomeofregulatoryreviewofaproductcandidatemaynotbefavorable.

• Theemergenceofcompetingtechnologiesandproductsandotheradversemarketdevelopmentsmaynegativelyimpactus.

Asaresultofthefactorsdiscussedabove,includingthefactorsdiscussedunder"RiskFactors"inItem1AofthisAnnualReportonForm10-K,weareunabletodeterminethedurationandcoststocompletecurrentorfuturenonclinicalandclinicalstagesofourproductcandidatesorwhen,ortowhatextent,wewillgeneraterevenuesfromthecommercializationandsaleofourproductcandidates.Developmenttimelines,probabilityofsuccessanddevelopmentcostsvarywidely.Weanticipatethatwewillmakedeterminationsastowhichadditionalprogramstopursueandhowmuchfundingtodirecttoeachprogramonanongoingbasisinresponsetothedataofeachproductcandidate,thecompetitivelandscapeandongoingassessmentsofsuchproductcandidate'scommercialpotential.Asaresultoftheregulatoryapprovalsbeginningin2012,linaclotidehasbeengeneratingsalesinconnectionwithcommerciallaunchesintheU.S.andanumberofE.U.andothercountries.

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Weexpectourresearchanddevelopmentcostswillbesubstantialfortheforeseeablefuture.Wewillcontinuetoinvestinlinaclotideincludingtheinvestigationofwaystoenhancetheclinicalprofilewithinitsindicatedpopulationandtheexplorationofitsutilityinotherindications,populationsandformulations.Wewillalsoinvestinourotherproductcandidatesasweadvancethemthroughnonclinicalstudiesandclinicaltrials,inadditiontofundingfull-timeequivalentsforresearchanddevelopmentactivitiesunderourexternalcollaborationandlicenseagreements.

Selling,GeneralandAdministrativeExpense.Selling,generalandadministrativeexpenseconsistsprimarilyofcompensation,benefitsandotheremployee-relatedexpensesforpersonnelinouradministrative,finance,legal,informationtechnology,businessdevelopment,commercial,sales,marketing,communicationsandhumanresourcefunctions.Othercostsincludethelegalcostsofpursuingpatentprotectionofourintellectualproperty,generalandadministrativerelatedfacilitycosts,insurancecostsandprofessionalfeesforaccountingandlegalservices.AswecontinuetoinvestinthecommercializationofLINZESS,weexpectourselling,generalandadministrativeexpenseswillbesubstantialfortheforeseeablefuture.Wechargeallselling,generalandadministrativeexpensestooperationsasincurred.

UnderourAstraZenecacollaborationagreement,wearereimbursedforcertainselling,generalandadministrativeexpensesandwenetthesereimbursementsagainstourselling,generalandadministrativeexpensesasincurred.WeincludeAllergan'sselling,generalandadministrativecost-sharingpaymentsinthecalculationofthenetprofitsandnetlossesfromthesaleofLINZESSintheU.S.andpresentthenetpaymenttoorfromAllerganascollaborationexpenseorcollaborativearrangementsrevenue,respectively.

CollaborationExpense.CollaborationexpenserepresentssettlementpaymentsduetoAllerganon50%ofLINZESSnetsalesintheU.S.aswellascostofgoodssoldandselling,generalandadministrativecost-sharingsettlementbetweenusandAllergan.

Other(Expense)Income.Interestexpenseconsistsprimarilyofcashandnon-cashinterestcostsrelatedtoouroutstandingPhaRMANotesandthe2022Notes.Non-cashinterestexpenseconsistsofamortizationofthedebtdiscountandassociateddebtissuancecostsassociatedwiththePhaRMANotesand2022Notes.Weamortizethesecostsusingtheeffectiveinterestratemethodoverthelifeoftherespectivenoteagreementsasinterestexpenseinourstatementsofoperations.

Interestincomeconsistsofinterestearnedonourcash,cashequivalentsandmarketablesecurities.

InJune2015,inconnectionwiththeissuanceofthe2022Notes,weenteredintoconvertiblenotehedgetransactions,ortheConvertibleNoteHedges.ConcurrentlywithenteringintotheConvertibleNoteHedges,wealsoenteredintocertainwarranttransactionsinwhichwesoldnotehedgewarrants,ortheNoteHedgeWarrants,totheConvertibleNoteHedgecounterpartiestoacquire20,249,665sharesofourClassAcommonstock,subjecttocustomaryanti-dilutionadjustments.LossonderivativesconsistsofthechangeinfairvalueoftheConvertibleNoteHedgesandNoteHedgeWarrants,whicharerecordedasderivativeassetsandliabilities.TheConvertibleNoteHedgesandtheNoteHedgeWarrantsarerecordedatfairvalueateachreportingperiodandchangesinfairvaluearerecordedinourconsolidatedstatementsofoperations.

CriticalAccountingPoliciesandEstimates

OurdiscussionandanalysisofourfinancialconditionandresultsofoperationsisbaseduponourconsolidatedfinancialstatementspreparedinaccordancewithU.S.generallyacceptedaccountingprinciples.Thepreparationofthesefinancialstatementsrequiresustomakecertainestimatesandassumptionsthatmayaffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsandliabilitiesatthedateoftheconsolidatedfinancialstatements,andtheamountsofrevenuesandexpensesduringthereportedperiods.Significantestimatesandassumptionsinourconsolidated

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financialstatementsincludethoserelatedtorevenuerecognition,available-for-salesecurities,inventoryvaluation,andrelatedreserves;impairmentoflong-livedassets;initialvaluationproceduresfortheissuanceofconvertiblenotes;fairvalueofderivatives;balancesheetclassificationofnotespayableandconvertiblenotes;incometaxes,includingthevaluationallowancefordeferredtaxassets;researchanddevelopmentexpenses;contingenciesandshare-basedcompensation.Webaseourestimatesonourhistoricalexperienceandonvariousotherassumptionsthatarebelievedtobereasonable,theresultsofwhichformthebasisformakingjudgmentsaboutthecarryingvaluesofassetsandliabilities.Actualresultsmaydiffermateriallyfromourestimatesunderdifferentassumptionsorconditions.Changesinestimatesarereflectedinreportedresultsintheperiodinwhichtheybecomeknown.

Webelievethatourapplicationofthefollowingaccountingpolicies,eachofwhichrequiresignificantjudgmentsandestimatesonthepartofmanagement,arethemostcriticaltoaidinfullyunderstandingandevaluatingourreportedfinancialresults.OursignificantaccountingpoliciesaremorefullydescribedinNote2,SummaryofSignificantAccountingPolicies,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

Revenue Recognition

Ourrevenueisgeneratedprimarilythroughcollaborativeresearchanddevelopment,licensingandco-promotionagreements.Thetermsoftheseagreementscontainmultipledeliverableswhichmayinclude(i)licenses,(ii)researchanddevelopmentactivities,includingparticipationonjointsteeringcommittees,(iii)themanufactureoffinisheddrugproduct,APIordevelopmentmaterialsforapartner,whicharereimbursedatacontractuallydeterminedrate,and(iv)co-promotionactivitiesbyourclinicalsalesspecialists.Non-refundablepaymentstousundertheseagreementsmayinclude(i)up-frontlicensefees,(ii)paymentsforresearchanddevelopmentactivities,(iii)paymentsforthemanufactureoffinisheddrugproduct,APIordevelopmentmaterials,(iv)paymentsbasedupontheachievementofcertainmilestones,(v)paymentsforsalesdetailing,promotionalsupportservicesandmedicaleducationinitiatives,and(vi)royaltiesonproductsales.Additionally,wemayreceiveourshareofthenetprofitsorbearourshareofthenetlossesfromthesaleoflinaclotideintheU.S.andChinathroughourcollaborationswithAllerganandAstraZeneca,respectively.

WeevaluaterevenuefromnewagreementsthathavemultipleelementsundertheguidanceofAccountingStandardsUpdate,orASU,No.2009-13,Multiple-DeliverableRevenueArrangements,orASU2009-13.WealsoevaluatewhetheramendmentstoourmultipleelementarrangementsareconsideredmaterialmodificationsthataresubjecttotheapplicationofASU2009-13.Thisevaluationrequiresustoassessallrelevantfactsandcircumstancesandtomakesubjectivedeterminationsandjudgments.Aspartofthisassessment,weconsiderwhetherthemodificationresultsinamaterialchangetothearrangement,includingwhetherthereisachangeintotalarrangementconsiderationthatismorethaninsignificant,whethertherearechangesinthedeliverablesincludedinthearrangement,whetherthereisachangeinthetermofthearrangementandwhetherthereisasignificantmodificationtothedeliveryscheduleforcontracteddeliverables.

Weidentifythedeliverablesincludedwithinmultipleelementagreementsandevaluatewhichdeliverablesrepresentseparateunitsofaccounting.Weaccountforthosecomponentsasseparateelementswhenthefollowingcriteriaaremet:

• thedelivereditemshavevaluetothecustomeronastand-alonebasis;and

• ifthereisageneralrightofreturnrelativetothedelivereditems,deliveryorperformanceoftheundelivereditemsisconsideredprobableandwithinourcontrol.

Thisevaluationrequiressubjectivedeterminationsandrequiresustomakejudgmentsabouttheindividualdeliverablesandwhethersuchdeliverablesareseparablefromtheotheraspectsofthecontractualrelationship.Indeterminingtheunitsofaccounting,weevaluatecertaincriteria,including

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whetherthedeliverableshavestandalonevalue,basedonconsiderationoftherelevantfactsandcircumstancesforeacharrangement.Factorsconsideredinthisdeterminationincludetheresearch,manufacturingandcommercializationcapabilitiesofthepartnerandtheavailabilityofpeptideresearchandmanufacturingexpertiseinthegeneralmarketplace.Inaddition,weconsiderwhetherthecollaboratorcanusethelicenseorotherdeliverablesfortheirintendedpurposewithoutthereceiptoftheremainingelements,andwhetherthevalueofthedeliverableisdependentontheundelivereditemsandwhetherthereareothervendorsthatcanprovidetheundelivereditems.

Theconsiderationreceivedisallocatedamongtheseparateunitsofaccountingusingtherelativesellingpricemethod,andtheapplicablerevenuerecognitioncriteriaareappliedtoeachoftheseparateunits.

Wedeterminetheestimatedsellingpricefordeliverablesusingvendor-specificobjectiveevidence,orVSOE,ofsellingprice,ifavailable,third-partyevidence,orTPE,ofsellingpriceifVSOEisnotavailable,orbestestimateofsellingprice,orBESP,ifneitherVSOEnorTPEisavailable.DeterminingtheBESPforadeliverablerequiressignificantjudgment.WeuseBESPtoestimatethesellingpriceforlicensestoourproprietarytechnology,sinceweoftendonothaveVSOEorTPEofsellingpriceforthesedeliverables.InthosecircumstanceswhereweutilizeBESPtodeterminetheestimatedsellingpriceofalicensetoourproprietarytechnology,weconsidermarketconditionsaswellasentity-specificfactors,includingthosefactorscontemplatedinnegotiatingtheagreementsaswellasinternallydevelopedmodelsthatincludeassumptionsrelatedtothemarketopportunity,estimateddevelopmentcosts,probabilityofsuccessandthetimeneededtocommercializeaproductcandidatepursuanttothelicense.InvalidatingourBESP,weevaluatewhetherchangesinthekeyassumptionsusedtodeterminetheBESPwillhaveasignificanteffectontheallocationofarrangementconsiderationbetweenmultipledeliverables.

Werecognizerevenuewhenthereispersuasiveevidencethatanarrangementexists,serviceshavebeenrenderedordeliveryhasoccurred,thepriceisfixedordeterminable,andcollectionisreasonablyassured.

Forcertainofourarrangements,particularlyourlicenseagreementwithAllerganfortheEuropeanterritory,itisrequiredthattaxesbewithheldonpaymentstous.Wehaveadoptedapolicytorecognizerevenuenetofthesetaxwithholdings.

NetProfitorNetLossSharing

Thedeterminationofwhetherweshouldrecognizerevenueonagrossornetbasisinvolvesjudgmentbasedontherelevantfactsandcircumstances.InaccordancewithAccountingStandardsCodification,orASC,Topic808,CollaborativeArrangements,andASC605-45,PrincipalAgentConsiderations,weconsiderthenatureandcontractualtermsofthearrangementandthenatureofourbusinessoperationstodeterminetheclassificationofthetransactionsunderourcollaborationagreements.Werecordrevenuetransactionsgrossintheconsolidatedstatementsofoperationsifwearedeemedtheprincipalinthetransaction,whichincludesbeingtheprimaryobligorandhavingtherisksandrewardsofownership.

Werecognizeourshareofthepre-taxcommercialnetprofitornetlossgeneratedfromthesalesofLINZESSintheU.S.intheperiodtheproductsalesarereportedbyAllerganandrelatedcostofgoodssoldandselling,generalandadministrativeexpensesareincurredbyusandourcollaborationpartner.TheseamountsarepartiallydeterminedbasedonamountsprovidedbyAllerganandinvolvetheuseofestimatesandjudgments,suchasproductsalesallowancesandaccrualsrelatedtopromptpaymentdiscounts,chargebacks,governmentalandcontractualrebates,wholesalerfees,productreturns,andco-paymentassistancecosts,whichcouldbeadjustedbasedonactualresultsinthefuture.WearehighlydependentonAllerganfortimelyandaccurateinformationregardinganynetrevenuesrealizedfromsalesofLINZESSintheU.S.andthecostsincurredinsellingit,inordertoaccurately

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reportourresultsofoperations.Fortheperiodscoveredintheconsolidatedfinancialstatementspresented,therehavebeennomaterialchangestopriorperiodestimatesofrevenues,costofgoodssoldorselling,generalandadministrativeexpensesassociatedwiththesalesofLINZESSintheU.S.However,ifwedonotreceivetimelyandaccurateinformationorincorrectlyestimateactivitylevelsassociatedwiththecollaborationatagivenpointintime,wecouldberequiredtorecordadjustmentsinfutureperiods.

WerecordourshareofthenetprofitsornetlossesfromthesalesofLINZESSintheU.S.onanetbasisandpresentthesettlementpaymentstoandfromAllerganascollaborationexpenseorcollaborativearrangementsrevenue,asapplicable,aswearenottheprimaryobligoranddonothavetherisksandrewardsofownershipinthecollaborationagreementwithAllerganforNorthAmerica.WeandAllergansettlethecostsharingquarterly,suchthatourstatementofoperationsreflects50%ofthepre-taxnetprofitorlossgeneratedfromsalesofLINZESSintheU.S.

Up-FrontLicenseFees

Werecognizerevenuesfromnonrefundable,up-frontlicensefeesrelatedtoarrangementsenteredintopriortotheadoptionofASU2009-13,includingthe$30.0millionup-frontlicensefeeundertheAstellaslicenseagreemententeredintoinNovember2009,onastraight-linebasisoverthecontractedorestimatedperiodofperformancesincethelicensedeliverableswerenotdeemedtohavevalueonastandalonebasisunderpre-ASU2009-13guidanceandwecouldnotdeterminethefairvalueoftheundeliveredelements.Theperiodofperformanceoverwhichtherevenuesarerecognizedistypicallytheperiodoverwhichtheresearchand/ordevelopmentisexpectedtooccur.Asaresult,wearerequiredtomakeestimatesregardingthedrugdevelopmentandcommercializationtimelinesforcompoundsbeingdevelopedpursuanttoanyapplicableagreement.Thedeterminationofthelengthoftheperiodoverwhichtorecognizetherevenueissubjecttojudgmentandestimationandcanhaveanimpactontheamountofrevenuerecognizedinagivenperiod.Quarterly,wereassessourperiodofsubstantialinvolvementoverwhichweamortizeourup-frontlicensefeesandmakeadjustmentsasappropriate.Ourestimatesregardingtheperiodofperformanceunderourcollaborativeresearchanddevelopmentandlicensingagreementshavechangedinthepastandmaychangeinthefuture.Anychangeinourestimatescouldresultinsubstantialchangestoourresultsfortheperiodoverwhichtherevenuesfromanup-frontlicensefeearerecognized.Intheeventthatanarrangementweretobeterminated,wewouldrecognizeasrevenueanyportionoftheup-frontfeethathadnotpreviouslybeenrecordedasrevenue,butwasclassifiedasdeferredrevenueatthedateofsuchtermination.AtDecember31,2015,ofourlinaclotidecollaborationandlicensearrangements,onlyaportionofAstellas'up-frontlicensefeeremaineddeferred.Theup-frontlicensefeesundertheAllergancollaborationforNorthAmericaandtheAllergancollaborationforEurope(previouslywithAlmirall)werefullyamortizedatDecember31,2015,astheperiodofperformanceunderthosearrangementsendedinthethreemonthsendedSeptember30,2012.

Werecognizerevenueallocatedtothelicenserelatedtocollaborationandlicenseagreementsenteredintoormateriallymodified,includingtheamountsallocatedtothelicenseundertheAstraZenecacollaborationagreemententeredintoinOctober2012,upondelivery,whenwebelievethelicensetoourintellectualpropertyhasstand-alonevalue.Whenwerecognizerevenueallocatedtothelicenseupondeliveryunderanyofourcollaborations,wemayexperiencesignificantfluctuationsinourcollaborativearrangementsrevenuesfromquartertoquarterandyeartoyeardependingonthetimingoftransactions.Whenwebelievethelicensetoourintellectualpropertydoesnothavestand-alonevaluefromtheotherdeliverablestobeprovidedinthearrangement,itiscombinedwithotherdeliverablesandtherevenueofthecombinedunitofaccountingisrecordedbasedonthemethodappropriateforthelastdelivereditem.

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Milestones

Attheinceptionofeacharrangementthatincludespre-commercialmilestonepayments,weevaluatewhethereachpre-commercialmilestoneissubstantive,inaccordancewithASUNo.2010-17,RevenueRecognition—MilestoneMethod,orASU2010-17.Thisevaluationincludesanassessmentofwhether(a)theconsiderationiscommensuratewitheither(1)theentity'sperformancetoachievethemilestone,or(2)theenhancementofthevalueofthedelivereditem(s)asaresultofaspecificoutcomeresultingfromtheentity'sperformancetoachievethemilestone,(b)theconsiderationrelatessolelytopastperformanceand(c)theconsiderationisreasonablerelativetoallofthedeliverablesandpaymenttermswithinthearrangement.Weevaluatefactorssuchasthescientific,clinical,regulatory,commercialandotherrisksthatmustbeovercometoachievetherespectivemilestone,thelevelofeffortandinvestmentrequiredandwhetherthemilestoneconsiderationisreasonablerelativetoalldeliverablesandpaymenttermsinthearrangementinmakingthisassessment.AtDecember31,2015,wehadnopre-commercialmilestonesthatweredeemedsubstantive.Ifasubstantivepre-commercialmilestonewereachievedandcollectionoftherelatedreceivablewasreasonablyassured,wewouldrecognizerevenuerelatedtothemilestoneinitsentiretyintheperiodinwhichthemilestonewasachieved.Ifweweretoachievemilestonesthatweconsidersubstantiveunderanyofourcollaborations,wemayexperiencesignificantfluctuationsinourcollaborativearrangementsrevenuefromquartertoquarterandyeartoyeardependingonthetimingofachievingsuchsubstantivemilestones.Inthosecircumstanceswhereapre-commercialmilestoneisnotsubstantive,werecognizeasrevenueonthedatethemilestoneisachievedanamountequaltotheapplicablepercentageoftheperformanceperiodthathadelapsedasofthedatethemilestonewasachieved,withthebalancebeingdeferredandrecognizedovertheremainingperiodofperformance.Pre-commercialmilestonepaymentsreceivedpriortotheadoptionofASU2010-17continuetoberecognizedovertheremainingperiodofperformance.

Commercialmilestonesareaccountedforasroyaltiesandarerecordedasrevenueuponachievementofthemilestone,assumingallotherrevenuerecognitioncriteriaaremet.

RoyaltiesonProductSales

Wereceive,orexpecttoreceiveinthefuture,royaltyrevenuesundercertainofourlicenseorcollaborationagreements.Ifwedonothaveanyfutureperformanceobligationsundertheselicenseorcollaborationsagreements,werecordtheserevenuesasearned.Totheextentwedonothaveaccesstotheroyaltyreportsfromourpartnersortheabilitytoaccuratelyestimatetheroyaltyrevenueintheperiodearned,werecordsuchroyaltyrevenuesonequarterinarrears.

Other

Weproducefinisheddrugproduct,APIanddevelopmentmaterialsforcertainofourpartners.

Werecognizerevenueonfinisheddrugproduct,APIanddevelopmentmaterialswhenthematerialhaspassedallqualitytestingrequiredforcollaboratoracceptance,deliveryhasoccurred,titleandriskoflosshavetransferredtothecollaborator,thepriceisfixedordeterminable,andcollectionisreasonablyassured.AsitrelatestodevelopmentmaterialsandAPIproducedforAstellas,wearereimbursedatacontractedrate.SuchreimbursementsareconsideredaspartofrevenuegeneratedpursuanttotheAstellaslicenseagreementandarepresentedascollaborativearrangementsrevenue.Anyfinisheddrugproduct,APIanddevelopmentmaterialscurrentlyproducedforAllerganfortheU.S.orAstraZenecaforChina,HongKongandMacauarerecognizedinaccordancewiththecost-sharingprovisionsoftheAllerganandAstraZenecacollaborationagreements,respectively.InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,andweseparatelyenteredintoanamendmenttothelicenseagreementwithAllerganrelatingtothedevelopmentandcommercializationoflinaclotideinEurope.Pursuanttothe

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termsoftheamendment,AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEuropefromus,aswellastheassociatedcosts.Wemayexperiencefluctuationsinourcollaborativearrangementsrevenuefromquartertoquarterandyeartoyeardependingonthetimingofsuchtransactions.

TheagreementsabovearemorefullydescribedinNote4,Collaboration,LicenseandCo-promotionAgreements,intheaccompanyingnotestoourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

Fair Value Measurements

Wehavecertainassetsandliabilitiesthataremeasuredatfairvalueonarecurringbasis,andwhichhavebeenclassifiedasLevel1,2or3withinthefairvaluehierarchyasdescribedintheaccountingstandardsforfairvaluemeasurements.Ingeneral,fairvaluesdeterminedbyLevel1inputsutilizeobservableinputssuchasquotedpricesinactivemarketsforidenticalassetsorliabilities.FairvaluesdeterminedbyLevel2inputsutilizedatapointsthatareeitherdirectlyorindirectlyobservable,suchasquotedprices,interestratesandyieldcurves.FairvaluesdeterminedbyLevel3inputsutilizeunobservabledatapointsinwhichthereislittleornomarketdata,whichrequireustodevelopourownassumptionsfortheassetorliability.

Ourinvestmentportfolioincludesmainlyfixedincomesecuritiesthatdonotalwaystradeonadailybasis.Asaresult,thepricingservicesweuseapplyotheravailableinformationasapplicablethroughprocessessuchasbenchmarkyields,benchmarkingoflikesecurities,sectorgroupingsandmatrixpricingtopreparevaluations.Inaddition,modelprocessesareusedtoassessinterestrateimpactanddevelopprepaymentscenarios.Thesemodelstakeintoconsiderationrelevantcreditinformation,perceivedmarketmovements,sectornewsandeconomicevents.Theinputsintothesemodelsmayincludebenchmarkyields,reportedtrades,broker-dealerquotes,issuerspreadsandotherrelevantdata.Wevalidatethepricesprovidedbyourthirdpartypricingservicesbyobtainingmarketvaluesfromotherpricingsourcesandanalyzingpricingdataincertaininstances.

WeclassifyourderivativefinancialinstrumentsasLevel3underthefairvaluehierarchy.ThesederivativesarenotactivelytradedandarevaluedusingtheBlack-Scholesoption-pricingmodelwhichrequirestheuseofsubjectiveassumptions,primarilytheexpectedstockpricevolatilityassumption.

Inventory Valuation

Inventoryisstatedatthelowerofcostormarketwithcostdeterminedunderthefirst-in,first-outbasis.

Weevaluateinventorylevelsquarterlyandanyinventorythathasacostbasisinexcessofitsexpectednetrealizablevalue,inventorythatbecomesobsolete,inventoryinexcessofexpectedsalesrequirements,inventorythatfailstomeetcommercialsalespecificationsorisotherwiseimpairediswrittendownwithacorrespondingchargetothestatementofoperationsintheperiodthattheimpairmentisfirstidentified.Wealsoassess,onaquarterlybasis,whetherwehaveanyexcessnon-cancelablepurchasecommitmentsresultingfromourtwominimumsupplyagreementswithoursuppliersoflinaclotideAPIoutsideofNorthAmerica.Werelyondatafromseveralsourcestoestimatethenetrealizablevalueofinventoryandnon-cancelablepurchasecommitments,includingpartnerforecastsofprojectedinventorypurchasesthatarereceivedquarterly,ourinternalforecastsandrelatedprocess,historicalsalesbygeographicregion,andthestatusofandprogresstowardcommercializationoflinaclotideinpartneredterritories.

Wecapitalizeinventoriesmanufacturedinpreparationforinitiatingsalesofaproductcandidatewhentherelatedproductcandidateisconsideredtohaveahighlikelihoodofregulatoryapprovalandtherelatedcostsareexpectedtoberecoverablethroughsalesoftheinventories.Indetermining

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whetherornottocapitalizesuchinventories,weevaluate,amongotherfactors,informationregardingtheproductcandidate'ssafetyandefficacy,thestatusofregulatorysubmissionsandcommunicationswithregulatoryauthoritiesandtheoutlookforcommercialsales,includingtheexistenceofcurrentoranticipatedcompetitivedrugsandtheavailabilityofreimbursement.Inaddition,weevaluaterisksassociatedwithmanufacturingtheproductcandidate,includingtheabilityofourthird-partysupplierstocompletethevalidationbatches,andtheremainingshelflifeoftheinventories.

Costsassociatedwithdevelopmentalproductspriortosatisfyingtheinventorycapitalizationcriteriaarechargedtoresearchanddevelopmentexpenseasincurred.

Thereisariskinherentinthesejudgmentsandanychangesinthesejudgmentsmayhaveamaterialimpactonourfinancialresultsinfutureperiods.

Research and Development Expense

Allresearchanddevelopmentexpensesareexpensedasincurred.Wedeferandcapitalizenonrefundableadvancepaymentswemakeforresearchanddevelopmentactivitiesuntiltherelatedgoodsarereceivedortherelatedservicesareperformed.

Researchanddevelopmentexpensesarecomprisedofcostsincurredinperformingresearchanddevelopmentactivities,includingsalary,benefitsandotheremployee-relatedexpenses;share-basedcompensationexpense;laboratorysuppliesandotherdirectexpenses;facilitiesexpenses;overheadexpenses;third-partycontractualcostsrelatingtononclinicalstudiesandclinicaltrialactivitiesandrelatedcontractmanufacturingexpenses,developmentofmanufacturingprocessesandregulatoryregistrationofthird-partymanufacturingfacilities;licensingfeesforourproductcandidates;andotheroutsideexpenses.

Clinicaltrialexpensesincludeexpensesassociatedwithcontractresearchorganizations,orCROs.TheinvoicingfromCROsforservicesrenderedcanlagseveralmonths.WeaccruethecostofservicesrenderedinconnectionwithCROactivitiesbasedonourestimateofsitemanagement,monitoringcosts,projectmanagementcosts,andinvestigatorfees.WemaintainregularcommunicationwithourCROvendorstogaugethereasonablenessofourestimates.Differencesbetweenactualclinicaltrialexpensesandestimatedclinicaltrialexpensesrecordedhavenotbeenmaterialandareadjustedforintheperiodinwhichtheybecomeknown.However,ifweincorrectlyestimateactivitylevelsassociatedwiththeCROservicesatagivenpointintime,wecouldberequiredtorecordmaterialadjustmentsinfutureperiods.UnderourAllerganandAstraZenecacollaborationagreementsfortheU.S.andChina,HongKongandMacau,respectively,wearereimbursedforcertainresearchanddevelopmentexpensesandwenetthesereimbursementsagainstourresearchanddevelopmentexpensesasincurred.PaymentstoAllerganorAstraZenecaforsuchterritoriesarerecordedasincrementalresearchanddevelopmentexpense.Nonrefundableadvancepaymentsforresearchanddevelopmentactivitiesarecapitalizedandexpensedovertherelatedserviceperiodorasgoodsarereceived.

Share-based Compensation Expense

Wemakecertainassumptionsinordertovalueandrecordexpenseassociatedwithawardsmadeunderourshare-basedcompensationarrangements.Weestimatethefairvalueofthestockoptionawardsforemployeesandnon-employeesusingtheBlack-Scholesoption-pricingmodel.Thefairvalueofourrestrictedstockunit,orRSU,awardsisbasedonthemarketvalueofourClassAcommonstockonthedateofgrant.Determiningthefairvalueofshare-basedawardsrequirestheuseofhighlysubjectiveassumptions,includingexpectedtermoftheawardandexpectedstockpricevolatility.Forcertainoftheseawards,wedeterminetheappropriateamounttoexpensebasedontheanticipatedachievementofperformancetargets,whichrequiresjudgment,includingforecastingtheachievementoffuturespecifiedtargets.Changesintheseassumptionsmayleadtovariabilitywithrespecttotheamountofexpensewerecognizeinconnectionwithshare-basedpayments.

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Werecognizecompensationexpenseonastraight-linebasisovertherequisiteserviceperiodbaseduponstockoptionsthatareultimatelyexpectedtovest,andaccordingly,suchcompensationexpenseisadjustedbytheamountofestimatedforfeitures.Weestimateforfeituresovertherequisiteserviceperiodwhenrecognizingshare-basedcompensationexpensebasedonhistoricalratesandforward-lookingfactors;theseestimatesareadjustedtotheextentthatactualforfeituresdiffer,orareexpectedtomateriallydiffer,fromourestimates.

Wehavealsograntedtime-acceleratedstockoptionswithtermsthatallowtheaccelerationinvestingofthestockoptionsupontheachievementofperformance-basedmilestonesspecifiedinthegrants.Share-basedcompensationexpenseassociatedwiththesetime-acceleratedstockoptionsisrecognizedovertherequisiteserviceperiodoftheawardsortheimpliedserviceperiod,ifshorter.

Whiletheassumptionsusedtocalculateandaccountforshare-basedcompensationawardsrepresentmanagement'sbestestimates,theseestimatesinvolveinherentuncertaintiesandtheapplicationofmanagement'sjudgment.Asaresult,ifrevisionsaremadetoourunderlyingassumptionsandestimates,ourshare-basedcompensationexpensecouldvarysignificantlyfromperiodtoperiod.

Derivative Assets and Liabilities

InJune2015,inconnectionwiththeissuanceofthe2022Notes,weenteredintotheConvertibleNoteHedges.ConcurrentlywithenteringintotheConvertibleNoteHedges,wealsoenteredintocertainwarranttransactionsinwhichwesoldNoteHedgeWarrantstotheConvertibleNoteHedgecounterpartiestoacquire20,249,665sharesofourClassAcommonstock,subjecttocustomaryanti-dilutionadjustments.TheseinstrumentsarederivativefinancialinstrumentsunderASCTopic815,DerivativesandHedging.

ThesederivativesarerecordedasassetsorliabilitiesatfairvalueeachreportingperiodandthefairvalueisdeterminedusingtheBlack-Scholesoption-pricingmodel.Thechangesinfairvaluearerecordedasacomponentofother(expense)incomeintheconsolidatedstatementsofoperations.SignificantinputsusedtodeterminethefairvalueincludethepricepershareofourClassAcommonstockonthedateofvaluation,timetomaturityofthederivativeinstruments,thestrikepricesofthederivativeinstruments,therisk-freeinterestrate,andthevolatilityofourClassAcommonstock.ChangestotheseinputscouldmateriallyaffectthevaluationoftheConvertibleNoteHedgesandNoteHedgeWarrantsinfutureperiods.

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ResultsofOperations

Thefollowingdiscussionsummarizesthekeyfactorsourmanagementbelievesarenecessaryforanunderstandingofourconsolidatedfinancialstatements.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Revenue

CollaborativeArrangementsRevenue.Theincreaseinrevenuefromcollaborativearrangementsofapproximately$73.1millionfortheyearendedDecember31,2015comparedtotheyearendedDecember31,2014wasprimarilyrelatedtoanapproximately$85.8millionincreaseinourshareofthenetprofitsfromthesaleofLINZESSintheU.S.;anapproximately$4.4millionincreaseduetorevenuesfromourco-promotionagreementwithExactSciencesforCologuardintheU.S.enteredintoinMarch2015;anapproximately$0.8millionincreaseinroyaltyrevenuebasedonsalesoflinaclotideinourpartneredterritories;andanapproximately$0.2millionincreaseduetorevenuesfromourco-promotionagreementwithAllerganforVIBERZIintheU.S.enteredintoinAugust2015.Theincreaseswerepartiallyoffsetbyanapproximately$8.1milliondecreaseinrevenuerecognizedinconnectionwiththeachievementofadevelopmentmilestoneunderourAstellaslicenseagreementin2014;anapproximately$7.0milliondecreaseinrevenuefromtheshipmentsoflinaclotideAPItoourlicensingpartners;anapproximately$1.9milliondecreaseinrevenuerecognizedrelatedtotheachievementofcommerciallaunchmilestonesunderourlicenseagreementwithAlmirallin2014;and

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YearEndedDecember31, 2015 2014 2013 (inthousands) Collaborativearrangementsrevenue: $ 149,555 $ 76,436 $ 22,881Costandexpenses: Costofrevenue 12 5,291 7,203Write-downofinventorytonetrealizablevalueandlossonnon-cancellablepurchasecommitments 17,638 20,292 —

Researchanddevelopment 108,746 101,890 102,378Selling,generalandadministrative 125,247 118,333 123,228Collaborationexpense — — 42,074

Totalcostandexpenses 251,643 245,806 274,883Lossfromoperations (102,088) (169,370) (252,002)Other(expense)income: Interestexpense (31,096) (21,166) (21,002)Interestandinvestmentincome 443 257 192Lossonderivatives (9,928) — —Otherincome — 661 —

Otherexpense,net (40,581) (20,248) (20,810)Netloss $ (142,669) $ (189,618) $ (272,812)

YearEndedDecember31, Change

2015 2014 $ % (dollarsinthousands) Collaborativearrangementsrevenue $ 149,555 $ 76,436 $ 73,119 96%

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anapproximately$1.1milliondecreaseinrevenuerelatedtoourcollaborationagreementwithAstraZeneca.

CostandExpenses

CostofRevenue.Thedecreaseincostofrevenueofapproximately$5.3millionfortheyearendedDecember31,2015comparedtotheyearendedDecember31,2014wasprimarilyattributabletolowersalesoflinaclotideAPItoourlicensingpartners.

Write-downofinventorytonetrealizablevalueandlossonnon-cancelablepurchasecommitments.Thedecreaseinwrite-downofinventoryandlossonnon-cancelablepurchasecommitmentsofapproximately$2.7millionfortheyearendedDecember31,2015comparedtotheyearendedDecember31,2014wasprimarilyrelatedtoanaccrualforalossonnon-cancelableinventorypurchasecommitmentsrecordedintheyearendedDecember31,2015,partiallyoffsetbyadecreaseintheamountofinventorywrittendowntoestimatednetrealizablevalue.

InventoryrepresentslinaclotideAPIthatisavailableforcommercialsale.Weevaluateinventorylevelsquarterlyandanyinventorythathasacostbasisinexcessofitsexpectednetrealizablevalue,inventorythatbecomesobsolete,inventoryinexcessofexpectedsalesrequirements,inventorythatfailstomeetcommercialsalespecificationsorisotherwiseimpairediswrittendownwithacorrespondingchargetothestatementofoperationsintheperiodthattheimpairmentisfirstidentified.Aspartofournetrealizablevalueassessmentofourinventory,weassesswhetherwehaveanyexcessnon-cancelablepurchasecommitmentsresultingfromourtwominimumsupplyagreementswithoursuppliersoflinaclotideAPIoutsideofNorthAmerica.

WehaveenteredintomultiplecommercialsupplyagreementsforthepurchaseoflinaclotideAPI.TwoofourAPIsupplyagreementsforsupplyingAPItoourcollaborationpartnersoutsideofNorthAmericacontainminimumpurchasecommitments.PriortoOctober2015,wewerealsoresponsibleforthemanufacturingoflinaclotideAPIforEurope.Aspartofournetrealizablevalueassessmentofourinventory,weassesswhetherwehaveanyexcessnon-cancelablepurchasecommitmentsresultingfromourminimumsupplyagreementswithoursuppliersoflinaclotideAPI.

Thedeterminationofthenetrealizablevalueofinventoryandnon-cancelablepurchasecommitmentsisbasedondemandforecastsfromourpartnersthatarereceivedquarterly,toprojectthenext24monthsofdemandandourinternalforecastforprojecteddemandinsubsequentyears.DuringthethreemonthsendedJune30,2015,Almirall,ourformerEuropeanpartner,reduceditsforecastedpurchasesoflinaclotideAPIforitsterritoryforthesubsequent18months.Inaddition,recentregulatorychangesmadebytheCFDAtothemarketingapprovalprocessinChinaresultedinapotentiallylengthenedapprovaltimelineforthecommercializationoflinaclotide.ThereduceddemandfromAlmirall,andthepotentialextendedtimelineforcommercializationoflinaclotideinChina,resultedinlowerprojectedsalesoflinaclotideAPItoourpartnersinEuropeandChina.Asaresult,

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YearEndedDecember31, Change

2015 2014 $ % (dollarsinthousands) Costandexpenses: Costofrevenue $ 12 $ 5,291 $ (5,279) (100)%Write-downofinventorytonetrealizablevalueandlossonnon-cancellablepurchasecommitments 17,638 20,292 (2,654) (13)%

Researchanddevelopment 108,746 101,890 6,856 7%Selling,generalandadministrative 125,247 118,333 6,914 6%

Totalcostandexpenses $ 251,643 $ 245,806 $ 5,837 2%

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duringthethreemonthsendedJune30,2015,wewrote-downthebalanceofourinventoryofapproximately$5.0milliontozeroandaccruedapproximately$3.2millionforexcessnon-cancelableinventorypurchasecommitments.

InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,andweseparatelyenteredintoanamendmenttothelicenseagreementwithAllerganrelatingtothedevelopmentandcommercializationoflinaclotideinEurope.Pursuanttothetermsoftheamendment,AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEurope,aswellastheassociatedcosts.Upontheexecutionoftheamendmenttothelicenseagreement,werecordedanincrementallossonnon-cancelableAPIpurchasecommitmentsofapproximately$6.9millionrelatedtooneofourAPIsupplyagreementscoveringthecommercialsupplyoflinaclotideAPIfortheEuropeanmarket.DuringthethreemonthsendedSeptember30,2015,wealsorecordedanincrementallossonnon-cancelableAPIpurchasecommitmentsrelatedtoin-processAPIbatches.WehaveevaluatedallremainingminimumpurchasecommitmentsunderourlinaclotideAPIsupplyagreementsthrough2023andconcludedthattheapproximately$22.3millionofpurchasecommitmentsfromthesecondAPIsupplyagreementcoveringtheJapan,China,HongKongandMacaumarketsarerealizablebasedonthecurrentforecastsreceivedfromourpartnersintheseterritoriesandourinternalforecasts.ThesechargesaremorefullydescribedinNote7,Inventory,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

DuringtheyearendedDecember31,2014,wewrotedownapproximately$20.3millionininventorytoanestimatednetrealizablevalueofapproximately$5.0million.ThiswritedownwasprimarilyattributabletoAlmirall'sreducedinventorydemandforecasts,mainlyduetothesuspensionofcommercializationofCONSTELLAinGermanyandachallengingcommercialenvironmentthroughoutEurope.

ResearchandDevelopmentExpense.Theincreaseinresearchanddevelopmentexpenseofapproximately$6.9millionfortheyearendedDecember31,2015comparedtotheyearendedDecember31,2014wasprimarilyrelatedtoanincreaseofapproximately$19.7millioninexternalcostsrelatedtothedevelopmentoflinaclotide;anincreaseofapproximately$4.2millionincompensation,benefitsandotheremployee-relatedexpensesprimarilyassociatedwithincreasedheadcount;andanincreaseofapproximately$3.2millioninresearchcostsrelatedtoourearlystagepipelinecandidates.Theincreaseswerepartiallyoffsetbyadecreaseofapproximately$12.6millionincostsrelatedtothecollaborationwithAllerganforNorthAmerica;adecreaseofapproximately$3.0millionrelatedtoourJanuary2014workforcereduction;adecreaseofapproximately$1.8millioninoperatingcosts,includinginformationtechnologyinfrastructurecostsandfacilitycostssuchasrentandamortizationofleaseholdimprovementsallocatedtoresearchanddevelopment;anapproximately$1.6milliondecreaseincostsassociatedwiththecollaborationwithAstraZeneca;andadecreaseofapproximately$1.2millionrelatedtothedevelopmentofmanufacturingprocessesandcostsassociatedwithlinaclotideAPIpriortomeetingourinventorycapitalizationpolicy.

Selling,GeneralandAdministrativeExpense.Selling,generalandadministrativeexpensesincreasedapproximately$6.9millionfortheyearendedDecember31,2015comparedtotheyearendedDecember31,2014primarilyasaresultofanapproximately$2.9millionincreaseincostsassociatedwithsellingexpensesandmarketingprograms;anapproximately$2.7millionincreaseinexternalconsultingcosts,patent-relatedlegalcostsandotherservicecostsprimarilyassociatedwithcommercialactivitiestosupportlinaclotide;anapproximately$2.1millionincreaseincompensation,benefitsandotheremployee-relatedexpenses;andanapproximately$0.4millionincreaseinselling,generalandadministrativeexpensesrelatedtofacilitiesandinformationtechnologyinfrastructurecosts,includingrentandamortizationofleaseholdimprovements.Theseincreaseswerepartiallyoffsetbyadecreaseincostsofapproximately$1.2millionrelatedtoourJanuary2014workforcereduction.

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Other(Expense)Income,Net

InterestExpense.Interestexpenseincreasedapproximately$9.9millionfortheyearendedDecember31,2015comparedtotheyearendedDecember31,2014,mainlyduetoanincreaseininterestexpenseofapproximately$10.9millionassociatedwithour2022Notes.Thisincreasewaspartiallyoffsetbyadecreaseofapproximately$0.9millionininterestexpenseassociatedwiththePhaRMANotesfortheyearendedDecember31,2015,andaninsignificantamountduetointerestassociatedwithcapitalleasesfortheautomobilesforourfield-basedsalesforceandmedicalscienceliaisons.

Lossonderivatives.Theapproximately$9.9millionincreaseinthenetlossonderivativesfortheyearendedDecember31,2015,comparedtotheyearendedDecember31,2014isduetoanapproximately$5.4milliondecreaseinthefairvalueoftheConvertibleNoteHedgesandanapproximately$4.5millionincreaseinthefairvalueoftheNoteHedgeWarrantssincetheirissuanceinJune2015.

OtherIncome.Thedecreaseinotherincomeofapproximately$0.7millionfortheyearendedDecember31,2015comparedtotheyearendedDecember31,2014isprimarilyrelatedtotimingoftherecognitionoftaxincentiveawardsthatwererecognizedintheyearendedDecember31,2014.IntheyearendedDecember31,2012,wewereawardedanapproximately$1.7milliontaxincentive,associatedwiththeLifeSciencesTaxIncentiveProgramfromtheMassachusettsLifeSciencesCenter.DuringtheyearendedDecember31,2014,werecognizedapproximately$0.7millionasotherincomeintheconsolidatedstatementofoperations,aswebelievedwehadsatisfiedourjobcreationcommitmentsrelatedtothisawardfor2012and2013.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Revenue

CollaborativeArrangementsRevenue.Theincreaseinrevenuefromcollaborativearrangementsofapproximately$53.6millionfortheyearendedDecember31,2014comparedtotheyearendedDecember31,2013wasprimarilyrelatedtoanapproximately$44.7millionincreaseinourshareofthenetprofitsfromthesaleofLINZESSintheU.S.;anapproximately$10.2millionincreaseinrevenuerecognizedinconnectionwiththeachievementofadevelopmentmilestoneunderourAstellaslicenseagreementinthefourthquarterof2014;anapproximately$2.6millionincreaseinlicenserevenuerelatedtoourcollaborationagreementwithAstraZenecarecognizedinconnectionwithamodification

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YearEndedDecember31, Change

2015 2014 $ % (dollarsinthousands) Other(expense)income: Interestexpense $ (31,096) $ (21,166) $ (9,930) 47%Interestandinvestmentincome 443 257 186 72%Lossonderivatives (9,928) — (9,928) 100%Otherincome — 661 (661) (100)%

Totalother(expense)income,net $ (40,581) $ (20,248) $ (20,333) 100%

YearEndedDecember31, Change

2014 2013 $ % (dollarsinthousands) Collaborativearrangementsrevenue $ 76,436 $ 22,881 $ 53,555 234%

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totheinitialdevelopmentplananddevelopmentbudgetinAugust2014,whichwasdeemedtobeamaterialmodification;anapproximately$0.5millionincreaseinroyaltyrevenuebasedonsalesofCONSTELLAintheEuropeanterritory;andanapproximately$0.4millionincreaseintheamortizationofdeferredrevenueassociatedwiththeAstellaslicenseagreementduetoachangeinestimateinthedevelopmentperiodinMarch2013.Theincreaseswerepartiallyoffsetbyanapproximately$4.7milliondecreaseinrevenuefromtheshipmentsoflinaclotideAPItoourlicensingpartners.

CostandExpenses

CostofRevenue.Thedecreaseincostofrevenueofapproximately$1.9millionfortheyearendedDecember31,2014comparedtotheyearendedDecember31,2013wasprimarilyattributabletolowersalesoflinaclotideAPItoourlicensingpartners.

Write-downofinventorytonetrealizablevalueandlossonnon-cancelablepurchasecommitments.Theincreaseinwrite-downofinventoryandlossonnon-cancelablepurchasecommitmentsofapproximately$20.3millionfortheyearendedDecember31,2014comparedtotheyearendedDecember31,2013wasrelatedtoawrite-downofapproximately$20.3millionininventorytoanestimatednetrealizablevalueofapproximately$5.0million.Thiswrite-downwasprimarilyattributabletoAlmirall'sreducedinventorydemandforecastsfortheEuropeanterritory,mainlyduetothesuspensionofcommercializationofCONSTELLAinGermanyandachallengingcommercialenvironmentthroughoutEurope.

ResearchandDevelopmentExpense.Thedecreaseinresearchanddevelopmentexpenseofapproximately$0.5millionfortheyearendedDecember31,2014comparedtotheyearendedDecember31,2013wasprimarilyrelatedtoadecreaseofapproximately$5.5millionincompensation,benefitsandotheremployee-relatedexpensesprimarilyassociatedwithdecreasedaverageheadcount;adecreaseofapproximately$5.0millionrelatedtothedevelopmentofmanufacturingprocessesandcostsassociatedwithlinaclotideAPIpriortomeetingourinventorycapitalizationpolicy;adecreaseofapproximately$3.6millionincostsrelatedtothecollaborationwithAllerganforNorthAmerica;andadecreaseofapproximately$1.0millioninresearchcostsrelatedtoourearlystagepipelinecandidates.Thedecreaseswerepartiallyoffsetbyanincreaseofapproximately$8.0millioninexternalcostsrelatedtothedevelopmentoflinaclotide;anincreaseofapproximately$3.2millioninoperatingcosts,includinginformationtechnologyinfrastructurecostsandfacilitycostssuchasrentandamortizationofleaseholdimprovementsallocatedtoresearchanddevelopment;anincreaseincostsofapproximately$3.0millionrelatedtoourJanuary2014workforcereduction;andanincreaseofapproximately$0.4millionincostsrelatedtothecollaborationwithAstraZeneca.

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YearEndedDecember31, Change

2014 2013 $ % (dollarsinthousands) Costandexpenses: Costofrevenue $ 5,291 $ 7,203 $ (1,912) (27)%Write-downofinventorytonetrealizablevalueandlossonnon-cancellablepurchasecommitments 20,292 — 20,292 100%

Researchanddevelopment 101,890 102,378 (488) (0)%Selling,generalandadministrative 118,333 123,228 (4,895) (4)%Collaborationexpense — 42,074 (42,074) (100)%

Totalcostandexpenses $ 245,806 $ 274,883 $ (29,077) (11)%

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Selling,GeneralandAdministrativeExpense.Selling,generalandadministrativeexpensesdecreasedapproximately$4.9millionfortheyearendedDecember31,2014comparedtotheyearendedDecember31,2013primarilyasaresultofanapproximately$6.5milliondecreaseinexternalconsultingandotherservicecostsprimarilyassociatedwithdevelopingandmaintainingtheinfrastructuretosupportlinaclotide;anapproximately$3.6milliondecreaseincostsassociatedwithsellingexpensesandmarketingprograms;anapproximately$1.5milliondecreaseincompensation,benefitsandotheremployee-relatedexpensesassociatedwithdecreasedaverageheadcount;andanapproximately$0.4milliondecreaseinselling,generalandadministrativeexpensesrelatedtofacilitiesandinformationtechnologyinfrastructurecostsassociatedwithoperatingourCambridge,Massachusettsfacility,includingrentandamortizationofleaseholdimprovements.Thedecreaseswerepartiallyoffsetbyanapproximately$5.9millionincreaseinshare-basedcompensationcosts,ofwhichapproximately$2.3millionisrelatedtothedepartureofanexecutiveofficer,andanincreaseincostsofapproximately$1.2millionrelatedtoourJanuary2014workforcereduction.

CollaborationExpense.Collaborationexpensedecreasedapproximately$42.1millionfortheyearendedDecember31,2014comparedtotheyearendedDecember31,2013,primarilyasaresultofourshareofhigherLINZESSnetsalesintheU.S.,whichgeneratedapaymentfromAllergantousratherthanapaymenttoAllergan.

Other(Expense)Income,Net

InterestExpense.Interestexpenseincreasedapproximately$0.2millionfortheyearendedDecember31,2014comparedtotheyearendedDecember31,2013,mainlyduetointerestassociatedwithcapitalleasesfortheautomobilesforourfield-basedsalesforceandmedicalscienceliaisons.

OtherIncome.Theincreaseinotherincomeofapproximately$0.7millionfortheyearendedDecember31,2014comparedtotheyearendedDecember31,2013wasprimarilyrelatedtotimingoftherecognitionoftaxincentiveawardsthatwerepreviouslyreceived.IntheyearendedDecember31,2012,wewereawardedanapproximately$1.7milliontaxincentive,associatedwiththeLifeSciencesTaxIncentiveProgramfromtheMassachusettsLifeSciencesCenter.DuringtheyearendedDecember31,2014,werecognizedapproximately$0.7millionasotherincomeintheconsolidatedstatementofoperations,aswebelievedwehadsatisfiedourjobcreationcommitmentsrelatedtothisawardfor2012and2013.

LiquidityandCapitalResources

Wehaveincurredlossessinceourinceptionin1998and,asofDecember31,2015,wehadanaccumulateddeficitofapproximately$1.1billion.Wehavefinancedouroperationstodateprimarilythroughboththeprivatesaleofourpreferredstockandthepublicsaleofourcommonstock,includingapproximately$203.2millionofnetproceedsfromourinitialpublicoffering,orIPO,inFebruary2010,andapproximately$413.4millionofnetproceedsfromourfollow-onpublicofferings;paymentsreceivedunderourstrategiccollaborativearrangements,includingupfrontandmilestonepayments,

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YearEndedDecember31, Change

2014 2013 $ % (dollarsinthousands) Other(expense)income: Interestexpense $ (21,166) $ (21,002) $ (164) 1%Interestandinvestmentincome 257 192 65 34%Otherincome 661 — 661 100%

Totalother(expense)income,net $ (20,248) $ (20,810) $ 562 (3)%

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royaltiesandourshareofnetprofits,aswellasreimbursementofcertainexpenses;anddebtfinancings,includingapproximately$167.3millionofnetproceedsfromtheprivateplacementofourPhaRMANotesinJanuary2013andapproximately$324.0millionofnetproceedsfromtheprivateplacementofour2022NotesinJune2015.AtDecember31,2015,wehadapproximately$439.4millionofunrestrictedcash,cashequivalentsandavailable-for-salesecurities.OurcashequivalentsincludeamountsheldinmoneymarketfundsandU.S.government-sponsoredsecurities.Ouravailable-for-salesecuritiesincludeamountsheldinU.S.TreasurysecuritiesandU.S.government-sponsoredsecurities.Weinvestcashinexcessofimmediaterequirementsinaccordancewithourinvestmentpolicy,whichlimitstheamountswemayinvestinanyonetypeofinvestmentandrequiresallinvestmentsheldbyustobeatleastA+rated,witharemainingmaturitywhenpurchasedoflessthantwelvemonths,soastoprimarilyachieveliquidityandcapitalpreservation.

DuringtheyearendedDecember31,2015,ourbalancesofcash,cashequivalentsandavailable-for-salesecuritiesincreasedapproximately$191.1million.Thisincreaseisprimarilyduetoapproximately$335.7millioningrossproceedsfromtheissuanceofour2022NotesinJune2015,approximately$70.8millioningrossproceedsfromtheissuanceofNoteHedgeWarrantsissuedinconnectionwiththe2022Notes,andapproximately$14.2millioninproceedsfromtheexerciseofstockoptionsandtheissuanceofsharespursuanttoouremployeestockpurchaseplan.ThesecashinflowswerepartiallyoffsetbythepurchaseofConvertibleNoteHedgesforapproximately$91.9millioninconnectionwithour2022Notesandthepaymentofapproximately$11.7millionofissuancecostsinconnectionwithour2022Notes,aswellasthecashusedtooperateourbusiness,includingpaymentsrelatedto,amongotherthings,researchanddevelopmentandselling,generalandadministrativeexpensesaswecontinuedtoinvestinourresearchpipelineandsupportthecontinuedcommercializationofLINZESSintheU.S.Wealsomadeprincipalpaymentsofapproximately$12.7milliononouroutstandingPhaRMANotes,investedapproximately$4.0millionincapitalexpenditures,andmadepaymentsofapproximately$1.3milliononcapitalleaseobligations.

CashFlowsFromOperatingActivities

Netcashusedinoperatingactivitiestotaledapproximately$106.9millionfortheyearendedDecember31,2015.Theprimaryusesofcashwereournetlossofapproximately$142.7millionandchangesinassetsandliabilitiesofapproximately$38.2millionresultingprimarilyfromanincreaseinrelatedpartyaccountsreceivableprincipallyattributabletohigheramountsduefromAllerganasaresultofincreasedprofitsonthesaleofLINZESSintheU.S.,anincreaseinrestrictedcashassociatedwithoursalesforcevehiclefleet,adecreaseinaccountspayable,relatedpartyaccountspayableandaccruedexpenses,adecreaseinprepaidexpensesandotherassets,adecreaseindeferredrevenue,adecreaseindeferredrentandanincreaseinaccruedresearchanddevelopmentcosts.Theseusesofcashwereprimarilyoffsetbynon-cashitemsofapproximately$74.0million,includingapproximately$25.5millioninshare-basedcompensationexpense,approximately$17.6millionduetothewrite-downofinventorytonetrealizablevalueandlossonnon-cancelablepurchasecommitments,approximately$11.6millionindepreciationandamortizationexpenseofpropertyandequipment,approximately$8.1millioninnon-cashinterestexpense,approximately$9.9millionduetothechangeinfairvalueoftheConvertibleNoteHedgesandNoteHedgeWarrants,andapproximately$1.1millioninaccretionofdiscountsandpremiumsonavailable-for-salesecurities.

Netcashusedinoperatingactivitiestotaledapproximately$155.6millionfortheyearendedDecember31,2014.Theprimaryusesofcashwereournetlossofapproximately$189.6millionandchangesinassetsandliabilitiesofapproximately$30.1millionresultingprimarilyfromanincreaseinrelatedpartyaccountsreceivableprincipallyduetohigheramountsduefromAllerganduetoincreasedprofitsonthesaleofLINZESSintheU.S.,anincreaseinpurchasesoflinaclotideAPI,anincreaseinprepaidexpensesandotherassets,andanincreaseindeferredrent.Theseusesofcashwerepartiallyoffsetbynon-cashitemsofapproximately$64.2million,includingapproximately$26.2millioninshare-

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basedcompensationexpense,approximately$20.3millionduetothewrite-downofinventorytonetrealizablevalue,approximately$12.3millionindepreciationandamortizationexpenseofpropertyandequipment,approximately$2.6millioninlossesonfacilitysubleases,approximately$1.6millioninnon-cashinterestexpenseandapproximately$1.1millioninaccretionofdiscountsandpremiumsonavailable-for-salesecurities.

Netcashusedinoperatingactivitiestotaledapproximately$273.4millionfortheyearendedDecember31,2013.Theprimaryusesofcashwereournetlossofapproximately$272.8millionandchangesinassetsandliabilitiesofapproximately$35.7millionresultingprimarilyfromadecreaseinaccountspayableandaccruedexpenses,includingaccruedresearchanddevelopmentcostsduetotimingofpayments,anincreaseininventoryforlinaclotideAPI,adecreaseindeferredrevenueassociatedwiththeAstellaslicenseagreement,adecreaseindeferredrentandanincreaseaccountsreceivable.Theseusesofcashwerepartiallyoffsetbynon-cashitemsofapproximately$35.1million,includingapproximately$19.8millioninshare-basedcompensationexpense,approximately$11.7millionindepreciationandamortizationexpenseofpropertyandequipment,approximately$1.7millioninnon-cashinterestexpense,approximately$1.3millioninaccretionofdiscountsandpremiumsonavailable-for-salesecuritiesandapproximately$0.6millioninlossesonthedisposalofpropertyandequipment.

CashFlowsFromInvestingActivities

CashusedininvestingactivitiesfortheyearendedDecember31,2015totaledapproximately$9.2millionandresultedprimarilyfromthepurchaseofapproximately$282.0millionofavailable-for-salesecuritiesandthepurchaseofapproximately$4.0millionofpropertyandequipment,primarilyleaseholdimprovementsandlaboratoryequipment.Thiswaspartiallyoffsetbythesalesandmaturitiesofapproximately$276.7millionofavailable-for-salesecuritiesandaninsignificantamountofproceedsfromthesaleofpropertyandequipment.

CashusedininvestingactivitiesfortheyearendedDecember31,2014totaledapproximately$56.6millionandresultedprimarilyfromthepurchaseofapproximately$254.0millionofavailable-for-salesecuritiesandthepurchaseofapproximately$3.5millionofpropertyandequipment,primarilymanufacturingandlaboratoryequipmentaswellassoftwaretoimproveourinformationtechnologyinfrastructure.Thiswaspartiallyoffsetbythematurityofapproximately$200.9millioninavailable-for-salesecurities.

CashusedininvestingactivitiesfortheyearendedDecember31,2013totaledapproximately$101.4millionandresultedprimarilyfromthepurchaseofapproximately$287.9millionofavailable-for-salesecuritiesandthepurchaseof$9.6millionofpropertyandequipment,primarilymanufacturingandlaboratoryequipmentaswellassoftwaretoimproveourinformationtechnologyinfrastructure.Thiswaspartiallyoffsetbythematurityofapproximately$196.1millioninavailable-for-salesecurities.

CashFlowsFromFinancingActivities

CashprovidedbyfinancingactivitiesfortheyearendedDecember31,2015totaledapproximately$303.1millionandresultedprimarilyfromapproximately$324.0millioninnetproceedsfromtheissuanceofour2022NotesinJune2015,approximately$70.8millioningrossproceedsfromtheissuanceoftheNoteHedgeWarrantsinconnectionwiththe2022Notes,approximately$14.2millionincashprovidedbystockoptionexercisesandtheissuanceofsharesunderouremployeestockpurchaseplan,partiallyoffsetbyapproximately$91.9millionrelatedtothepurchaseoftheConvertibleNoteHedgesinconnectionwithour2022Notes,approximately$12.7millionincashusedforprincipalpaymentsonouroutstandingPhaRMANotes,andapproximately$1.3millionincashusedforpaymentsonourcapitalleases.

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CashprovidedbyfinancingactivitiesfortheyearendedDecember31,2014totaledapproximately$210.9millionandresultedprimarilyfromapproximately$190.4millioninnetproceedsfromourfollow-onpublicstockofferinginthefirstquarterof2014andapproximately$22.7millionincashprovidedbystockoptionexercisesandtheissuanceofsharesunderouremployeestockpurchaseplan,partiallyoffsetbyapproximately$1.2millionincashusedforprincipalpaymentsondebtandapproximately$1.0millionincashusedforpaymentsonourcapitalleases.

CashprovidedbyfinancingactivitiesfortheyearendedDecember31,2013totaledapproximately$313.6millionandresultedprimarilyfromapproximately$167.3millioninnetproceedsfromourdebtfinancinginJanuary2013,approximately$137.8millioninnetproceedsfromourfollow-onpublicstockofferinginthesecondquarterof2013andapproximately$9.3millionincashprovidedbystockoptionexercisesandtheissuanceofsharesunderouremployeestockpurchaseplan,partiallyoffsetbyapproximately$0.8millionincashusedforpaymentsonourcapitalleases.

Funding Requirements

WebegancommercializingLINZESSintheU.S.withourcollaborationpartner,Allergan,inthefourthquarterof2012,andwecurrentlyderivesubstantiallyallofourrevenuefromthiscollaboration.WearealsodeployingsignificantresourcestoadvanceproductopportunitiesinGIandvascular/fibroticdiseases.OurgoalistobecomecashflowpositivedrivenbyincreasedrevenuegeneratedthroughsalesofLINZESSandfinancialdiscipline.However,wehavenotachievedpositivecashflowsfromoperationstodate.

UnderourcollaborationwithAllerganforNorthAmerica,totalnetsalesofLINZESSintheU.S.,asrecordedbyAllergan,arereducedbycommercialcostsincurredbyeachparty,andtheresultingamountissharedequallybetweenusandAllergan.Additionally,wereceiveroyaltiesbasedonsalesoflinaclotideintheEuropeanterritory,Canada,andMexicofromAllergan.WebelieverevenuesfromourLINZESSpartnershipfortheU.S.withAllerganwillcontinuetoconstituteasignificantportionofourtotalrevenuefortheforeseeablefutureandwecannotbecertainthatsuchrevenues,aswellastherevenuesfromourothercommercialactivities,willenableustobecomecashflowpositive,ortodosoonthetimeframesweexpect.WealsoanticipatethatwewillcontinuetoincursubstantialexpensesforthenextseveralyearsaswefurtherdevelopandcommercializelinaclotideintheU.S.,Chinaandothermarkets,andcontinuetoinvestinourpipelineandpotentiallyotherexternalopportunities.WebelievethatourcashonhandasofDecember31,2015willbesufficienttomeetourprojectedoperatingneedsatleastthroughthenexttwelvemonths.

Ourforecastoftheperiodoftimethroughwhichourfinancialresourceswillbeadequatetosupportouroperations,includingtheunderlyingestimatesregardingthecoststodevelopourproductcandidatesandobtainregulatoryapprovalsandthecoststocommercializelinaclotideintheU.S.,Chinaandothermarkets,aswellasourgoaltobecomecashflowpositive,areforward-lookingstatementsthatinvolverisksanduncertainties.Ouractualresultscouldvarymateriallyandnegativelyfromtheseandotherforward-lookingstatementsasaresultofanumberoffactors,includingthefactorsdiscussedinthe"RiskFactors"sectionofthisAnnualReportonForm10-K.Wehavebasedourestimatesonassumptionsthatmayprovetobewrong,andwecouldutilizeouravailablecapitalresourcessoonerthanwecurrentlyexpect.

Duetothenumerousrisksanduncertaintiesassociatedwiththedevelopmentandcommercializationofourproductcandidates,weareunabletoestimatepreciselytheamountsofcapitaloutlaysandoperatingexpendituresnecessarytocompletethedevelopmentof,andtoobtainregulatoryapprovalfor,linaclotide(otherthaninthecountrieswhereitisalreadyapproved)andourotherproductcandidates,ortocommercializelinaclotideandourotherproductcandidates,ineachcase,forallofthemarkets,indications,populationsandformulationsforwhichwebelieveeach

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productcandidateissuited.Ourfundingrequirementswilldependonmanyfactors,including,butnotlimitedto,thefollowing:

• therevenuegeneratedbysalesofLINZESS,CONSTELLAandanyotherproducts;

• therateofprogressandcostofourcommercializationactivities,includingtheexpenseweincurinmarketingandsellingLINZESSandanyotherproducts;

• thesuccessofourthird-partymanufacturingactivities;

• thetimeandcostsinvolvedindeveloping,andobtainingregulatoryapprovalsfor,ourproductcandidates;

• thesuccessofourresearchanddevelopmentefforts;

• theemergenceofcompetingorcomplementarydevelopments;

• thecostsoffiling,prosecuting,defendingandenforcinganypatentclaimsandotherintellectualpropertyrights;

• thetermsandtimingofanyadditionalcollaborative,licensingorotherarrangementsthatwemayestablish;and

• theacquisitionofbusinesses,productsandtechnologiesandtheimpactofotherstrategictransactions.

Financing Strategy

Wemay,fromtimetotime,consideradditionalfundingthroughacombinationofnewcollaborativearrangements,strategicalliances,andadditionalequityanddebtfinancingsorfromothersources.Wewillcontinuetomanageourcapitalstructureandtoconsiderallfinancingopportunities,whenevertheymayoccur,thatcouldstrengthenourlong-termliquidityprofile.Anysuchcapitaltransactionsmayormaynotbesimilartotransactionsinwhichwehaveengagedinthepast.Therecanbenoassurancethatanysuchfinancingopportunitieswillalsobeavailableonacceptableterms,ifatall.

ContractualCommitmentsandObligations

Lease and Commercial Supply Obligations

ThefollowingtablesummarizesourleaseandcommercialsupplyobligationsatDecember31,2015(excludinginterest):

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PaymentsDuebyPeriod

Total LessThan1Year 1-3Years 3-5Years

MoreThan5Years

(inthousands)

Commercialsupplyobligations(1) $ 32,440 $ 2,259 $ 9,641 $ 11,252 $ 9,288Capitalleaseobligations(2) 3,094 2,756 338 — —Operatingleaseobligations(3) 32,422 15,617 16,805 — —Convertibleseniornotesdue2022(includinginterest)(4) 384,795 7,553 15,106 15,106 347,030Totalcontractualobligations $ 452,751 $ 28,185 $ 41,890 $ 26,358 $ 356,318

(1) WehavemultiplecommercialsupplyagreementswithcontractmanufacturingorganizationsforthepurchaseoflinaclotidefinisheddrugproductandAPI.TwoofourAPIsupplyagreementsforsupplyingAPItoourcollaborationpartnersoutsideofNorthAmericacontainminimumpurchase

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Notes Payable

InJanuary2013,weclosedaprivateplacementof$175.0millioninaggregateprincipalamountof11%PhaRMANotesdue2024.Thenotesbearanannualinterestrateof11%,withinterestpayableMarch15,June15,September15andDecember15ofeachyear,eachaPaymentDate,whichbeganonJune15,2013.OnMarch15,2014,webeganmakingquarterlypaymentsonthenotesequaltothegreaterof(i)7.5%ofnetsalesofLINZESSintheU.S.fortheprecedingquarter,ortheSyntheticRoyaltyAmount,and(ii)accruedandunpaidinterestonthenotes,ortheRequiredInterestAmount.PrincipalonthenoteswillberepaidinanamountequaltotheSyntheticRoyaltyAmountminustheRequiredInterestAmount,whenthisisapositivenumber,untiltheprincipalhasbeenpaidinfull.GiventheprincipalpaymentsonthenotesarebasedonthenetsalesofLINZESSintheU.S.,whichwillvaryfromquartertoquarter,thenotesmayberepaidpriortoJune15,2024,thefinallegalmaturitydate.Wemadeprincipalpaymentsof$13.9millionthroughDecember31,2015.Sinceweareunabletoreliablyestimatetheexacttimingandamountsoftheprincipalpayments,asdiscussedunder"RiskFactors"inItem1AofthisAnnualReportonForm10-K,thenotes-relatedcommitmentsarenotincludedinthetableabove.

InJune2015,weissuedapproximately$335.7millionof2.25%ConvertibleSeniorNotesdueJune15,2022.The2022NotesaregovernedbyanindenturebetweenusandU.S.BankNationalAssociation,asthetrustee,ortheIndenture.The2022Notesareseniorunsecuredobligationsandbearinterestatarateof2.25%peryear,payableonJune15andDecember15ofeachyear,whichbeganonDecember15,2015.The2022NoteswillmatureonJune15,2022,unlessearlierconvertedorrepurchased.Theinitialconversionrateforthe2022Notesis60.3209sharesofClassAcommonstock(subjecttoadjustmentasprovidedforintheIndenture)per$1,000principalamountofthe2022Notes,whichisequaltoaninitialconversionpriceofapproximately$16.58pershare.Inaddition,tominimizetheimpactofpotentialdilutiontoourcommonstockuponconversionofthe2022Notes,weenteredintotheConvertibleNoteHedgescovering20,249,665sharesofourClassAcommonstockinconnectionwiththe2022Notes.ConcurrentlywithenteringintotheConvertibleNoteHedges,wesoldNoteHedgeWarrantstoacquire20,249,665sharesofourClassAcommonstockataninitialstrikepriceofapproximately$21.50pershare,subjecttocustomaryanti-dilutionadjustments.The2022Notes,ConvertibleNoteHedgesandNoteHedgeWarrantsaremorefullydescribedinNote10,Notes

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commitments,whicharereflectedinthetableabove.DuringtheyearendedDecember31,2015,werecognizedapproximately$10.1millionofthecommitmentsincludedinthetableabove,asanaccrualforexcesspurchasecommitmentsthatisrecordedinotherliabilitiesinourconsolidatedbalancesheet.Inaddition,weandAllerganarejointlyobligatedtomakeminimumpurchasesoflinaclotideAPIfortheterritoriescoveredbyourcollaborationwithAllerganforNorthAmerica.Currently,Allerganfulfillsallsuchminimumpurchasecommitmentsand,asaresult,theyareexcludedfromthetableabove.

(2) Ourcommitmentforcapitalleaseobligationsprincipallyrelatestoleasedautomobilesforourfield-basedsalesforceandmedicalscienceliaisons,andcomputerandofficeequipment.

(3) OurcommitmentsforoperatingleasesrelatetoourleaseofofficeandlaboratoryspaceinCambridge,MassachusettsandourdatastoragespaceinBoston,Massachusetts.Inthethirdquarterof2014,weenteredintotwoarrangements,withthelandlord'sconsent,tosubleaseaportionofourCambridge,Massachusettscorporateheadquarters.Thefutureminimumleasepaymentsincludedinthistabledonotreflectthe$0.8millionofsubleaserentalincomethatweareentitledtoreceivethrough2016underthefirstsubleaseorthe$11.1millionofsubleaserentalincomethatweareentitledtoreceivethrough2018underthesecondsublease.

(4) Convertibleseniornotesincludesapproximately$335.7millionofour2022Noteswhichcanpotentiallybesettledinourcommonstockunderthetermsoftheassociatedindenture.

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Payable,intheaccompanyingnotestoourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-Kforadditionalinformation.

Commitments Related to Our Collaboration and License Agreements

UnderourcollaborativeagreementswithAllerganforNorthAmericaandAstraZenecaforChina,HongKongandMacau,wesharewithAllerganandAstraZenecaalldevelopmentandcommercializationcostsrelatedtolinaclotideintheU.S.andforChina,HongKongandMacau,respectively.Theactualamountsthatwepayourpartnersorthatpartnerspaytouswilldependonnumerousfactorsoutsideofourcontrol,includingthesuccessofourclinicaldevelopmenteffortswithrespecttolinaclotide,thecontentandtimingofdecisionsmadebytheregulators,thereimbursementandcompetitivelandscapearoundlinaclotideandourotherproductcandidates,andotherfactorsdescribedunder"RiskFactors"inItem1AofthisAnnualReportonForm10-K.

Inaddition,wehavecommitmentstomakepotentialfuturemilestonepaymentsunderoneofourlicenseandcollaborationarrangementstotaling$23.0million,whichincludes$5.0millionfordevelopmentmilestonesand$18.0millionforregulatorymilestones.Wearealsocommittedtomakepotentialfuturemilestonepaymentsofupto$114.5millionperproducttooneofourcollaborationpartners,including$21.5millionfordevelopmentmilestones,$58.0millionforregulatorymilestonesand$35.0millionforsales-basedmilestones.Thesemilestonesprimarilyincludethecommencementandresultsofclinicaltrials,obtainingregulatoryapprovalinvariousjurisdictionsandthefuturecommercialsuccessofdevelopmentprograms,theoutcomeandtimingofwhicharedifficulttopredictandsubjecttosignificantuncertainty.Inadditiontothemilestonesdiscussedabove,weareobligatedtopayroyaltiesonfuturesales,whicharecontingentongeneratinglevelsofsalesoffutureproductsthathavenotbeenachievedandmayneverbeachieved.Sinceweareunabletoreliablyestimatethetimingandamountsofsuchmilestoneandroyaltypayments,orwhethertheywilloccuratall,thesecontingentpaymentshavebeenexcludedfromthetableabove.OurlicenseandcollaborationagreementsaremorefullydescribedinNote4,Collaboration,LicenseandCo-promotionAgreements,intheaccompanyingnotestoourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

Tax-related Obligations

Weexcludeliabilitiesorobligationspertainingtouncertaintaxpositionsfromoursummaryofcontractualcommitmentsandobligationsaswecannotmakeareliableestimateoftheperiodofcashsettlementwiththerespectivetaxingauthorities.AsofDecember31,2015,wehaveapproximately$17.6millionofuncertaintaxpositions,andwecannotreasonablyestimatethepotentialadjustmenttoournetoperatinglosscarryforward.TheseuncertaintaxpositionsaremorefullydescribedinNote14,IncomeTaxes,intheaccompanyingnotestoourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-Kforadditionalinformation.

Other Funding Commitments

AsofDecember31,2015,wehaveseveralon-goingstudiesinvariousclinicaltrialstages.OurmostsignificantclinicaltrialexpendituresaretoCROs.ThecontractswithCROsgenerallyarecancellable,withnotice,atouroptionanddonothaveanysignificantcancellationpenalties.Theseitemsarenotincludedinthetableabove.

Off-BalanceSheetArrangements

Wedonothaveanyrelationshipswithunconsolidatedentitiesorfinancialpartnerships,suchasentitiesoftenreferredtoasstructuredfinanceorspecialpurposeentities,thatwouldhavebeenestablishedforthepurposeoffacilitatingoff-balancesheetarrangements(asthattermisdefinedin

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Item303(a)(4)(ii)ofRegulationS-K)orothercontractuallynarroworlimitedpurposes.Assuch,wearenotexposedtoanyfinancing,liquidity,marketorcreditriskthatcouldariseifwehadengagedinthosetypesofrelationships.Weenterintoguaranteesintheordinarycourseofbusinessrelatedtotheguaranteeofourownperformanceandtheperformanceofoursubsidiaries.

NewAccountingPronouncements

ForadiscussionofnewaccountingpronouncementsrefertoNote2,SummaryofSignificantAccountingPolicies,toourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-K.

Item7A.Quantitative and Qualitative Disclosures about Market Risk

InterestRateRisk

Weareexposedtomarketriskrelatedtochangesininterestrates.Weinvestourcashinavarietyoffinancialinstruments,principallysecuritiesissuedbytheU.S.governmentanditsagenciesandmoneymarketinstruments.Thegoalsofourinvestmentpolicyarepreservationofcapital,fulfillmentofliquidityneedsandfiduciarycontrolofcashandinvestments.Wealsoseektomaximizeincomefromourinvestmentswithoutassumingsignificantrisk.

Ourprimaryexposuretomarketriskisinterestincomesensitivity,whichisaffectedbychangesinthegenerallevelofinterestrates,particularlybecauseourinvestmentsareinshort-termmarketablesecurities.Duetotheshort-termdurationofourinvestmentportfolioandthelowriskprofileofourinvestments,animmediate1%changeininterestrateswouldnothaveamaterialeffectonthefairmarketvalueofourportfolio.Accordingly,wewouldnotexpectouroperatingresultsorcashflowstobeaffectedtoanysignificantdegreebytheeffectofasuddenchangeinmarketinterestratesonourinvestmentportfolio.

Wedonotbelieveourcash,cashequivalentsandavailable-for-salesecuritieshavesignificantriskofdefaultorilliquidity.Whilewebelieveourcash,cashequivalentsandavailable-for-salesecuritiesdonotcontainexcessiverisk,wecannotprovideabsoluteassurancethatinthefutureourinvestmentswillnotbesubjecttoadversechangesinmarketvalue.Inaddition,wemaintainsignificantamountsofcash,cashequivalentsandavailable-for-salesecuritiesatoneormorefinancialinstitutionsthatareinexcessoffederallyinsuredlimits.Giventhepotentialinstabilityoffinancialinstitutions,wecannotprovideassurancethatwewillnotexperiencelossesonthesedeposits.

Ourcapitalleaseobligations,PhaRMANotesand2022Notesbearinterestatafixedrateandthereforehaveminimalexposuretochangesininterestrates;however,becausetheseinterestratesarefixed,wemaybepayingahigherinterestrate,relativetomarket,inthefutureifourcreditratingimprovesorothercircumstanceschange.

EquityPriceRisk

2022Notes

Our2022NotesincludeconversionandsettlementprovisionsthatarebasedonthepriceofourClassAcommonstockatconversionoratmaturityofthe2022Notes.TheamountofcashwemayberequiredtopayisdeterminedbythepriceofourClassAcommonstock.Thefairvalueofour2022NotesisdependentonthepriceandvolatilityofourClassAcommonstockandwillgenerallyincreaseordecreaseasthemarketpriceofourClassAcommonstockchanges.

The2022NotesareconvertibleintoClassAcommonstockataninitialconversionrateof60.3209sharesofClassAcommonstock(subjecttoadjustmentasprovidedforintheIndenture)per$1,000principalamountofthe2022Notes,whichisequaltoaninitialconversionpriceofapproximately

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$16.58pershare.The2022NoteswillmatureonJune15,2022unlessearlierconvertedorrepurchased.The2022Notesbearcashinterestatanannualrateof2.25%,payableonJune15andDecember15ofeachyear,whichbeganonDecember15,2015.AsofDecember31,2015,thefairvalueofthe2022Noteswasestimatedbyustobe$311.6million.The2022NotesaremorefullydescribedinNote5,FairValueofFinancialInstruments,andNote10,NotesPayable,intheaccompanyingnotestoourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-Kforadditionalinformation.

ConvertibleNoteHedgeandWarrantTransactionswithRespectto2022Notes

Tominimizetheimpactofpotentialdilutiontoourcommonstockuponconversionofthe2022Notes,weenteredintoConvertibleNoteHedges.ConcurrentlywithenteringintotheConvertibleNoteHedges,weenteredintowarranttransactionswherebywesoldNoteHedgeWarrantstoacquire,subjecttocustomaryadjustments,20,249,665sharesofourClassAcommonstockataninitialstrikepriceofapproximately$21.50pershare,subjecttoadjustment.TheConvertibleNoteHedgesandNoteHedgeWarrantsaremorefullydescribedinNote10,NotesPayable,intheaccompanyingnotestoourconsolidatedfinancialstatementsappearingelsewhereinthisAnnualReportonForm10-Kforadditionalinformation.

ForeignCurrencyRisk

WehavenosignificantoperationsoutsidetheU.S.andwedonotexpecttobeimpactedsignificantlybyforeigncurrencyfluctuations.

EffectsofInflation

WedonotbelievethatinflationandchangingpricesovertheyearsendedDecember31,2015,2014and2013hadasignificantimpactonourresultsofoperations.

Item8.Consolidated Financial Statements and Supplementary Data

Ourconsolidatedfinancialstatements,togetherwiththeindependentregisteredpublicaccountingfirmreportthereon,appearatpagesF-1throughF-66,ofthisAnnualReportonForm10-K.

Item9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item9A.Controls and Procedures

EvaluationofDisclosureControlsandProcedures

AsrequiredbyRule13a-15(b)oftheExchangeAct,ourmanagement,includingourprincipalexecutiveofficerandourprincipalfinancialofficer,conductedanevaluationasoftheendoftheperiodcoveredbythisAnnualReportonForm10-Koftheeffectivenessofthedesignandoperationofourdisclosurecontrolsandprocedures.Basedonthatevaluation,ourprincipalexecutiveofficerandprincipalfinancialofficerconcludedthatourdisclosurecontrolsandproceduresareeffectiveatthereasonableassurancelevelinensuringthatinformationrequiredtobedisclosedbyusinthereportsthatwefileorsubmitundertheExchangeActisrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedintheSEC'srulesandforms.Disclosurecontrolsandproceduresinclude,withoutlimitation,controlsandproceduresdesignedtoensurethatinformationrequiredtobedisclosedbyusinthereportswefileundertheExchangeActisaccumulatedandcommunicatedtoourmanagement,includingourprincipalexecutiveofficerandprincipalfinancialofficer,asappropriatetoallowtimelydecisionsregardingrequireddisclosure.

Management'sReportonInternalControlOverFinancialReporting

Ourmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverourfinancialreporting.InternalcontroloverfinancialreportingisdefinedinRules13a-15(f)and15d-15(f)undertheExchangeActastheprocessdesignedby,orunderthesupervisionof,ourChiefExecutiveOfficerandChiefFinancialOfficer,andeffectedbyourboardofdirectors,managementandotherpersonnel,toprovidereasonableassuranceregardingthereliabilityofourfinancialreportingandthepreparationofourfinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples,andincludesthosepoliciesandproceduresthat:

(1) pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsofassets;

(2) providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresarebeingmadeonlyinaccordancewiththeauthorizationsofmanagementanddirectors;and

(3) providereasonableassuranceregardingthepreventionortimelydetectionofunauthorizedacquisition,useordispositionofassetsthatcouldhaveamaterialeffectonourfinancialstatements.

Underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,weconductedanevaluationoftheeffectivenessofourinternalcontroloverfinancialreportingbasedontheframeworkprovidedinInternalControl—IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(2013framework).Basedonthisevaluation,ourmanagementconcludedthatourinternalcontroloverfinancialreportingwaseffectiveasofDecember31,2015.

TheeffectivenessofourinternalcontroloverfinancialreportingasofDecember31,2015hasbeenauditedbyErnstandYoungLLP,anindependentregisteredpublicaccountingfirm,asstatedintheirreport,whichisincludedherein.

ChangesinInternalControl

AsrequiredbyRule13a-15(d)oftheExchangeAct,ourmanagement,includingourprincipalexecutiveofficerandourprincipalfinancialofficer,conductedanevaluationoftheinternalcontroloverfinancialreportingtodeterminewhetheranychangesoccurredduringthequarterended

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December31,2015thathavemateriallyaffected,orarereasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.Basedonthatevaluation,ourprincipalexecutiveofficerandprincipalfinancialofficerconcludednosuchchangesduringthequarterendedDecember31,2015materiallyaffected,orwerereasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.

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ReportofIndependentRegisteredPublicAccountingFirm

TheBoardofDirectorsandShareholdersofIronwoodPharmaceuticals,Inc.

WehaveauditedIronwoodPharmaceuticals,Inc.'sinternalcontroloverfinancialreportingasofDecember31,2015,basedoncriteriaestablishedinInternalControl—IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(2013framework)(theCOSOcriteria).IronwoodPharmaceuticals,Inc.'smanagementisresponsibleformaintainingeffectiveinternalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreportingincludedintheaccompanyingManagement'sReportonInternalControlOverFinancialReporting.Ourresponsibilityistoexpressanopiniononthecompany'sinternalcontroloverfinancialreportingbasedonouraudit.

WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,testingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk,andperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion.

Acompany'sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany'sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany'sassetsthatcouldhaveamaterialeffectonthefinancialstatements.

Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.

Inouropinion,IronwoodPharmaceuticals,Inc.maintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2015,basedontheCOSOcriteria.

Wealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),theconsolidatedbalancesheetsofIronwoodPharmaceuticals,Inc.asofDecember31,2015and2014,andtherelatedconsolidatedstatementsofoperations,comprehensiveloss,stockholders'equity,andcashflowsforeachofthethreeyearsintheperiodendedDecember31,2015ofIronwoodPharmaceuticals,Inc.andourreportdatedFebruary19,2016expressedanunqualifiedopinionthereon.

Boston,MassachusettsFebruary19,2016

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/s/Ernst&YoungLLP

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Item9B.Other Information

None.

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PARTIII

Item10.Directors, Executive Officers and Corporate Governance

Wehaveadoptedacodeofbusinessconductandethicsapplicabletoourdirectors,executiveofficersandallotheremployees.Acopyofthatcodeisavailableonourcorporatewebsiteathttp://www.ironwoodpharma.com.Anyamendmentstothecodeofbusinessconductandethics,andanywaiverstheretoinvolvingourexecutiveofficers,alsowillbeavailableonourcorporatewebsite.Aprintedcopyofthesedocumentswillbemadeavailableuponrequest.ThecontentonourwebsiteisnotincorporatedbyreferenceintothisAnnualReportonForm10-K.

CertaininformationregardingourexecutiveofficersissetforthattheendofPartI,Item1ofthisForm10-Kundertheheading,"ExecutiveOfficersoftheRegistrant."Theotherinformationrequiredbythisitemisincorporatedbyreferencefromourproxystatementforour2016AnnualMeetingofStockholders.

Item11.Executive Compensation

Theinformationrequiredbythisitemisincorporatedbyreferencefromourproxystatementforour2016AnnualMeetingofStockholders.

Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Theinformationrequiredbythisitemisincorporatedbyreferencefromourproxystatementforour2016AnnualMeetingofStockholders.

Item13.Certain Relationships and Related Transactions, and Director Independence

Theinformationrequiredbythisitemisincorporatedbyreferencefromourproxystatementforour2016AnnualMeetingofStockholders.

Item14.Principal Accountant Fees and Services

Theinformationrequiredbythisitemisincorporatedbyreferencefromourproxystatementforour2016AnnualMeetingofStockholders.

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PARTIV

Item15.Exhibits and Financial Statement Schedules

(a)Listofdocumentsfiledaspartofthisreport

(1) ConsolidatedFinancialStatementslistedunderPartII,Item8andincludedhereinbyreference.

(2) ConsolidatedFinancialStatementSchedules

Noschedulesaresubmittedbecausetheyarenotapplicable,notrequiredorbecausetheinformationisincludedintheConsolidatedFinancialStatementsorNotestoConsolidatedFinancialStatements.

(3) Exhibits

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IncorporatedbyreferencehereinNumber Description Form Date

3.1 EleventhAmendedandRestatedCertificateofIncorporation

AnnualReportonForm10-K(FileNo.001-34620)

March30,2010

3.2 FifthAmendedandRestatedBylaws AnnualReportonForm10-K(File

No.001-34620) March30,2010

4.1 SpecimenClassAcommonstock

certificate RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

January20,2010

4.2 EighthAmendedandRestatedInvestors'

RightsAgreement,datedasofSeptember1,2009,byandamongIronwoodPharmaceuticals,Inc.,theFoundersandtheInvestorsnamedtherein

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

November20,2009

4.3 Indenture,datedasofJanuary4,2013,

byandbetweenIronwoodPharmaceuticals,Inc.,asissueroftheNotes,andU.S.BankNationalAssociation,asinitialtrusteeoftheNotesandasOperatingBank(includingtheformoftheLinaclotidePhaRMASM11%Notesdue2024)

Form8-K(FileNo.001-34620) January8,2013

4.4 Indenture,datedasofJune15,2015,by

andbetweenIronwoodPharmaceuticals,Inc.andU.S.BankNationalAssociation(includingtheformofthe2.25%ConvertibleSeniorNotedue2022)

Form8-K(FileNo.001-34620) June15,2015

TableofContents

91

IncorporatedbyreferencehereinNumber Description Form Date

10.1# AmendedandRestated2002StockIncentivePlanandformagreementsthereunder

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

December23,2009

10.2# AmendedandRestated2005Stock

IncentivePlanandformagreementsthereunder

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

January29,2010

10.3# AmendedandRestated2010Employee,

DirectorandConsultantEquityIncentivePlan

RegistrationStatementonFormS-8,asamended(FileNo.333-184396)

October12,2012

10.3.1# FormofStockOptionAgreementunder

theAmendedandRestated2010Employee,DirectorandConsultantEquityIncentivePlan

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.3.2# FormofNon-employeeDirector

RestrictedStockAgreementundertheAmendedandRestated2010Employee,DirectorandConsultantEquityIncentivePlan

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.3.3# FormofRestrictedStockUnit

AgreementundertheAmendedandRestated2010Employee,DirectorandConsultantEquityIncentivePlan

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.4# AmendedandRestated2010Employee

StockPurchasePlan AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.5# ChangeofControlSeveranceBenefit

Plan,asamendedandrestated QuarterlyReportonForm10-Q(FileNo.001-34620)

April29,2014

10.6# FormofExecutiveSeverance

Agreement AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.7# DirectorCompensationPlaneffective

January1,2014 AnnualReportonForm10-K(FileNo.001-34620)

February7,2014

10.8# FormofIndemnificationAgreement

withDirectorsandOfficers RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

December23,2009

10.9# ConsultingAgreement,datedasof

December16,2014,byandbetweenChristopherWalshandIronwoodPharmaceuticals,Inc.

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

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92

IncorporatedbyreferencehereinNumber Description Form Date

10.10# ConsultingAgreement,datedDecember3,2014,byandbetweenLawrenceS.OlanoffandIronwoodPharmaceuticals,Inc.

QuarterlyReportonForm10-Q(FileNo.001-34620)

May6,2015

10.11+ CollaborationAgreement,datedasof

September12,2007,asamendedonNovember3,2009,byandbetweenForestLaboratories,Inc.andIronwoodPharmaceuticals,Inc.

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

February2,2010

10.11.1 AmendmentNo.2totheCollaboration

Agreement,datedasofJanuary8,2013,byandbetweenForestLaboratories,Inc.andIronwoodPharmaceuticals,Inc.

AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.12+ LicenseAgreement,datedasof

April30,2009,byandbetweenAllerganPharmaceuticalsInternationalLtd.(formerlywithAlmirall,S.A.)andIronwoodPharmaceuticals,Inc.

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

February2,2010

10.12.1+ AmendmentNo.1toLicense

Agreement,datedasofJune11,2013,byandbetweenAllerganPharmaceuticalsInternationalLtd.(formerlywithAlmirall,S.A.)andIronwoodPharmaceuticals,Inc.

QuarterlyReportonForm10-Q(FileNo.001-34620)

August8,2013

10.12.2++* AmendmenttotheLicenseAgreement,

datedasofOctober26,2015,byandbetweenAllerganPharmaceuticalsInternationalLtd.andIronwoodPharmaceuticals,Inc.

10.13++* NovationAgreement,datedasof

October26,2015,byandamongAlmirall,S.A.,AllerganPharmaceuticalsInternationalLtd.andIronwoodPharmaceuticals,Inc.

10.14+ LicenseAgreement,datedasof

November10,2009,byandamongAstellasPharmaInc.andIronwoodPharmaceuticals,Inc.

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

February2,2010

TableofContents

93

IncorporatedbyreferencehereinNumber Description Form Date

10.15+ CollaborationAgreement,datedasofOctober23,2012,byandbetweenAstraZenecaABandIronwoodPharmaceuticals,Inc.

AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.16+ CommercialSupplyAgreement,dated

asofJune23,2010,byandamongPolyPeptideLaboratories,Inc.andPolypeptideLaboratories(SWEDEN)AB,ForestLaboratories,Inc.andIronwoodPharmaceuticals,Inc.

QuarterlyReportonForm10-Q(FileNo.001-34620)

August10,2010

10.17+ CommercialSupplyAgreement,dated

asofMarch28,2011,byandamongCordenPharmaColorado,Inc.(f/k/aRocheColoradoCorporation),IronwoodPharmaceuticals,Inc.andForestLaboratories,Inc.

QuarterlyReportonForm10-Q(FileNo.001-34620)

May13,2011

10.17.1+ AmendmentNo.3toCommercial

SupplyAgreement,datedasofNovember26,2013,byandbetweenCordenPharmaColorado,Inc.(f/k/aRocheColoradoCorporation),IronwoodPharmaceuticals,Inc.andForestLaboratories,Inc.

AnnualReportonForm10-K(FileNo.001-34620)

February7,2014

10.18 Leaseforfacilitiesat301BinneySt.,

Cambridge,MA,datedasofJanuary12,2007,asamendedonApril9,2009,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

December23,2009

10.18.1 SecondAmendmenttoLeasefor

facilitiesat301BinneySt.,Cambridge,MA,datedasofFebruary9,2010,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

March30,2010

10.18.2 ThirdAmendmenttoLeaseforfacilities

at301BinneySt.,Cambridge,MA,datedasofJuly1,2010,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

March30,2011

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94

IncorporatedbyreferencehereinNumber Description Form Date

10.18.3 FourthAmendmenttoLeaseforfacilitiesat301BinneySt.,Cambridge,MA,datedasofFebruary3,2011,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

March30,2011

10.18.4 FifthAmendmenttoLeaseforfacilities

at301BinneySt.,Cambridge,MA,datedasofOctober18,2011,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February29,2012

10.18.5 SixthAmendmenttoLeaseforfacilities

at301BinneySt.,Cambridge,MA,datedasofJuly19,2012,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.18.6 SeventhAmendmenttoLeasefor

facilitiesat301BinneySt.,Cambridge,MA,datedasofOctober30,2012,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.18.7 EighthAmendmenttoLeasefor

facilitiesat301BinneySt.,Cambridge,MA,datedasofJuly8,2014,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.18.8 NinthAmendmenttoLeaseforfacilities

at301BinneySt.,Cambridge,MA,datedasofOctober27,2014,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.18.9 TenthAmendmenttoLeaseforfacilities

at301BinneySt.,Cambridge,MA,datedasofJanuary21,2015,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

TableofContents

95

IncorporatedbyreferencehereinNumber Description Form Date

10.18.10 Sublease,datedasofJuly1,2014,byandbetweenBiogenIdecMAInc.andIronwoodPharmaceuticals,Inc.toLeaseforfacilitiesat301BinneySt.,Cambridge,MA,asamended,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.19 BaseCallOptionTransaction

Confirmation,datedasofJune10,2015,betweenIronwoodPharmaceuticals,Inc.andJPMorganChaseBank,NationalAssociation,LondonBranch

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.20 BaseCallOptionTransaction

Confirmation,datedasofJune10,2015,betweenIronwoodPharmaceuticals,Inc.andCreditSuisseCapitalLLC,throughitsagentCreditSuisseSecurities(USA)LLC

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.21 BaseWarrantsConfirmation,datedas

ofJune10,2015,betweenIronwoodPharmaceuticals,Inc.andJPMorganChaseBank,NationalAssociation,LondonBranch

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.22 BaseWarrantsConfirmation,datedas

ofJune10,2015,betweenIronwoodPharmaceuticals,Inc.andCreditSuisseCapitalLLC,throughitsagentCreditSuisseSecurities(USA)LLC

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.23 AdditionalCallOptionTransaction

Confirmation,datedasofJune22,2015,betweenIronwoodPharmaceuticals,Inc.andJPMorganChaseBank,NationalAssociation,LondonBranch

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

TableofContents

96

IncorporatedbyreferencehereinNumber Description Form Date

10.24 AdditionalCallOptionTransactionConfirmation,datedasofJune22,2015,betweenIronwoodPharmaceuticals,Inc.andCreditSuisseCapitalLLC,throughitsagentCreditSuisseSecurities(USA)LLC

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.25 AdditionalWarrantsConfirmation,

datedasofJune22,2015,betweenIronwoodPharmaceuticals,Inc.andJPMorganChaseBank,NationalAssociation,LondonBranch

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.26 AdditionalWarrantsConfirmation,

datedasofJune22,2015,betweenIronwoodPharmaceuticals,Inc.andCreditSuisseCapitalLLC,throughitsagentCreditSuisseSecurities(USA)LLC

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

21.1* SubsidiariesofIronwood

Pharmaceuticals,Inc.

23.1* ConsentofIndependentRegistered

PublicAccountingFirm

31.1* CertificationofChiefExecutiveOfficer

pursuanttoRules13a-14or15d-14oftheExchangeAct

31.2* CertificationofChiefFinancialOfficer

pursuanttoRules13a-14or15d-14oftheExchangeAct

32.1‡ CertificationofChiefExecutiveOfficer

pursuanttoRules13a-14(b)or15d-14(b)oftheExchangeActand18U.S.C.Section1350

32.2‡ CertificationofChiefFinancialOfficer

pursuanttoRules13a-14(b)or15d-14(b)oftheExchangeActand18U.S.C.Section1350

101.INS* XBRLInstanceDocument 101.SCH* XBRLTaxonomyExtensionSchema

Document

101.CAL* XBRLTaxonomyExtension

CalculationLinkbaseDocument

TableofContents

(b)Exhibits.

TheexhibitsrequiredbythisItemarelistedunderItem15(a)(3).

(c)FinancialStatementSchedules.

ThefinancialstatementschedulesrequiredbythisItemarelistedunderItem15(a)(2).

97

IncorporatedbyreferencehereinNumber Description Form Date

101.LAB* XBRLTaxonomyExtensionLabelLinkbaseDatabase

101.PRE* XBRLTaxonomyExtension

PresentationLinkbaseDocument

101.DEF* XBRLTaxonomyExtensionDefinition

LinkbaseDocument

* Filedherewith.

‡ Furnishedherewith.

+ Confidentialtreatmentgrantedunder17C.F.R.§§200.80(b)(4)and230.406.Theconfidentialportionsofthisexhibithavebeenomittedandaremarkedaccordingly.TheconfidentialportionshavebeenprovidedseparatelytotheSECpursuanttotheconfidentialtreatmentrequest.

++ Confidentialtreatmentrequestedunder17C.F.R.§§200.80(b)(4)andRule24b-2.Theconfidentialportionsofthisexhibithavebeenomittedandaremarkedaccordingly.TheconfidentialportionshavebeenprovidedseparatelytotheSECpursuanttotheconfidentialtreatmentrequest.

# Managementcontractorcompensatoryplan,contract,orarrangement.

TableofContents

SIGNATURES

PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized,intheCityofCambridge,CommonwealthofMassachusetts,onthe19thdayofFebruary2016.

PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedateindicated.

98

IronwoodPharmaceuticals,Inc.By:

/s/PETERM.HECHT

PeterM.HechtChiefExecutiveOfficer

Signature Title Date

/s/PETERM.HECHT

PeterM.Hecht

ChiefExecutiveOfficerandDirector(PrincipalExecutiveOfficer)

February19,2016

/s/THOMASGRANEY

ThomasGraney

ChiefFinancialOfficer(PrincipalFinancialOfficer)

February19,2016

/s/GINACONSYLMAN

GinaConsylman

VicePresident,FinanceandChiefAccountingOfficer(PrincipalAccountingOfficer)

February19,2016

/s/TERRANCEG.MCGUIRE

TerranceG.McGuire ChairmanoftheBoard February19,2016

/s/GEORGEH.CONRADES

GeorgeH.Conrades Director February19,2016

/s/MARSHAH.FANUCCI

MarshaH.Fanucci Director February19,2016

/s/JULIEH.MCHUGH

JulieH.McHugh Director February19,2016

TableofContents

99

Signature Title Date

/s/LAWRENCES.OLANOFF

LawrenceS.Olanoff Director February19,2016

/s/EDWARDP.OWENS

EdwardP.Owens Director February19,2016

/s/BRYANE.ROBERTS

BryanE.Roberts Director February19,2016

/s/CHRISTOPHERT.WALSH

ChristopherT.Walsh Director February19,2016

/s/DOUGLASE.WILLIAMS

DouglasE.Williams Director February19,2016

TableofContents

IndextoConsolidatedFinancialStatementsofIronwoodPharmaceuticals,Inc.

F-1

Page ReportofIndependentRegisteredPublicAccountingFirm F-2ConsolidatedBalanceSheetsasofDecember31,2015and2014 F-3ConsolidatedStatementsofOperationsfortheYearsEndedDecember31,2015,2014and2013 F-4ConsolidatedStatementsofComprehensiveLossfortheYearsEndedDecember31,2015,2014and2013 F-5ConsolidatedStatementsofStockholders'EquityfortheYearsEndedDecember31,2015,2014and2013 F-6ConsolidatedStatementsofCashFlowsfortheYearsEndedDecember31,2015,2014and2013 F-8NotestoConsolidatedFinancialStatements F-9

TableofContents

REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM

TotheBoardofDirectorsandShareholdersofIronwoodPharmaceuticals,Inc.

WehaveauditedtheaccompanyingconsolidatedbalancesheetsofIronwoodPharmaceuticals,Inc.asofDecember31,2015and2014,andtherelatedconsolidatedstatementsofoperations,comprehensiveloss,stockholders'equity,andcashflowsforeachofthethreeyearsintheperiodendedDecember31,2015.ThesefinancialstatementsaretheresponsibilityoftheCompany'smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.

WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.

Inouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedfinancialpositionofIronwoodPharmaceuticals,Inc.atDecember31,2015and2014,andtheconsolidatedresultsofitsoperationsanditscashflowsforeachofthethreeyearsintheperiodendedDecember31,2015,inconformitywithU.S.generallyacceptedaccountingprinciples.

Wealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),IronwoodPharmaceuticals,Inc.'sinternalcontroloverfinancialreportingasofDecember31,2015,basedoncriteriaestablishedinInternalControl—IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(2013framework)andourreportdatedFebruary19,2016expressedanunqualifiedopinionthereon.

Boston,MassachusettsFebruary19,2016

F-2

/s/Ernst&YoungLLP

TableofContents

IronwoodPharmaceuticals,Inc.

ConsolidatedBalanceSheets

(Inthousands,exceptshareandpershareamounts)

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

F-3

December31,

2015 December31,

2014 ASSETS

Currentassets: Cashandcashequivalents $ 261,287 $ 74,297Available-for-salesecurities 178,107 174,037Accountsreceivable 2,884 10Relatedpartyaccountsreceivable,net 51,634 25,829Inventory — 4,954Prepaidexpensesandothercurrentassets 6,293 9,180

Totalcurrentassets 500,205 288,307Restrictedcash 8,747 8,147Propertyandequipment,net 21,075 29,826Convertiblenotehedges 86,466 —Otherassets 2,628 3,042Totalassets $ 619,121 $ 329,322

LIABILITIESANDSTOCKHOLDERS'EQUITY Currentliabilities: Accountspayable $ 8,586 $ 9,754Relatedpartyaccountspayable,net 3 8Accruedresearchanddevelopmentcosts 4,245 3,574Accruedexpensesandothercurrentliabilities 23,301 22,612Currentportionofcapitalleaseobligations 2,631 1,152Currentportionofdeferredrent 5,544 4,992Currentportionofdeferredrevenue 7,191 7,191CurrentportionofPhaRMAnotespayable 24,964 11,258

Totalcurrentliabilities 76,465 60,541Capitalleaseobligations,netofcurrentportion 306 2,571Deferredrent,netofcurrentportion 6,395 10,522Deferredrevenue,netofcurrentportion 1,798 8,989Notehedgewarrants 75,328 —Convertibleseniornotes 220,620 —PhaRMANotespayable,netofcurrentportion 132,964 158,147Otherliabilities 10,120 —Commitmentsandcontingencies Stockholders'equity: Preferredstock,$0.001parvalue,75,000,000sharesauthorized,nosharesissuedandoutstanding — —

ClassAcommonstock,$0.001parvalue,500,000,000sharesauthorizedand127,371,478and124,915,658sharesissuedandoutstandingatDecember31,2015and2014,respectively 127 125

ClassBcommonstock,$0.001parvalue,100,000,000sharesauthorizedand15,870,356and15,907,272sharesissuedandoutstandingatDecember31,2015and2014,respectively 16 16

Additionalpaid-incapital 1,205,183 1,055,876Accumulateddeficit (1,110,115) (967,446)Accumulatedothercomprehensiveloss (86) (19)

Totalstockholders'equity 95,125 88,552Totalliabilitiesandstockholders'equity $ 619,121 $ 329,322

TableofContents

IronwoodPharmaceuticals,Inc.

ConsolidatedStatementsofOperations

(Inthousands,exceptpershareamounts)

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

F-4

YearsEndedDecember31, 2015 2014 2013 Collaborativearrangementsrevenue $ 149,555 $ 76,436 $ 22,881Costandexpenses: Costofrevenue 12 5,291 7,203Write-downofinventorytonetrealizablevalueandlossonnon-cancellablepurchasecommitments 17,638 20,292 —

Researchanddevelopment 108,746 101,890 102,378Selling,generalandadministrative 125,247 118,333 123,228Collaborationexpense — — 42,074

Totalcostandexpenses 251,643 245,806 274,883Lossfromoperations (102,088) (169,370) (252,002)

Other(expense)income: Interestexpense (31,096) (21,166) (21,002)Interestandinvestmentincome 443 257 192Lossonderivatives (9,928) — —Otherincome — 661 —

Otherexpense,net (40,581) (20,248) (20,810)Netloss $ (142,669) $ (189,618) $ (272,812)Netlosspershare—basicanddiluted $ (1.00) $ (1.39) $ (2.35)Weightedaveragenumberofcommonsharesusedinnetlosspershare—basicanddiluted: 142,155 136,811 115,852

TableofContents

IronwoodPharmaceuticals,Inc.

ConsolidatedStatementsofComprehensiveLoss

(Inthousands)

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

F-5

YearsEndedDecember31, 2015 2014 2013 Netloss $ (142,669) $ (189,618) $ (272,812)

Othercomprehensiveloss: Unrealizedlossesonavailable-for-salesecurities (67) (21) (3)

Totalothercomprehensiveloss (67) (21) (3)Comprehensiveloss $ (142,736) $ (189,639) $ (272,815)

TableofContents

IronwoodPharmaceuticals,Inc.

ConsolidatedStatementsofStockholders'Equity

(Inthousands,exceptshareamounts)

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

F-6

ClassA

commonstock ClassB

commonstock

Accumulatedother

comprehensiveincome(loss)

Additionalpaid-incapital

Accumulateddeficit

TotalStockholders'

equity

Shares Amount Shares Amount BalanceatDecember31,2012 78,253,074 $ 78 29,512,253 $ 30 $ 648,955 $ (505,016) $ 5 $ 144,052Issuanceofcommonstockuponexerciseofstockoptionsandemployeestockpurchaseplan 645,196 1 1,538,887 1 9,295 — — 9,297

Issuanceofcommonstockawards 10,772 — — — 28 — — 28

Issuanceofcommonstockuponpublicoffering,netofofferingcostsof$7.9million 11,204,948 11 — — 137,755 — — 137,766

ConversionofClassBcommonstocktoClassAcommonstock 12,689,103 13 (12,689,103) (13) — — — —

Share-basedcompensationexpenserelatedtoissuanceofstockoptionstonon-employees — — — — 272 — — 272

Share-basedcompensationexpenserelatedtoshare-basedawardstoemployeesandemployeestockpurchaseplan — — — — 19,624 — — 19,624

Restrictedcommonstocknolongersubjecttorepurchase — — — — 1 — — 1

Unrealizedlossesonshort-terminvestments — — — — — — (3) (3)

Netloss — — — — — (272,812) — (272,812)BalanceatDecember31,2013 102,803,093 103 18,362,037 18 815,930 (777,828) 2 38,225Issuanceofcommonstockuponexerciseofstockoptionsandemployeestockpurchaseplan 1,705,752 2 1,876,880 2 23,328 — — 23,332

Issuanceofcommonstockawards 290,843 — — — 22 — — 22

Issuanceofcommonstockuponpublicoffering,netofofferingcostsof$10.8million 15,784,325 16 — — 190,412 — — 190,428

ConversionofClassBcommonstocktoClassAcommonstock 4,331,645 4 (4,331,645) (4) — — — —

Share-basedcompensationexpenserelatedtoissuanceofstockoptionstonon-employees — — — — 2,618 — — 2,618

Share-basedcompensationexpenserelatedtoshare-basedawardstoemployeesandemployeestockpurchaseplan — — — — 23,566 — — 23,566

Unrealizedlossesonshort-terminvestments — — — — — — (21) (21)

Netloss — — — — — (189,618) — (189,618)

TableofContents

IronwoodPharmaceuticals,Inc.

ConsolidatedStatementsofStockholders'Equity(Continued)

(Inthousands,exceptshareamounts)

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

F-7

ClassA

commonstock ClassB

commonstock

Accumulatedother

comprehensiveincome(loss)

Additionalpaid-incapital

Accumulateddeficit

TotalStockholders'

equity

Shares Amount Shares Amount BalanceatDecember31,2014 124,915,658 125 15,907,272 16 1,055,876 (967,446) (19) 88,552Issuanceofcommonstockuponexerciseofstockoptionsandemployeestockpurchaseplan 972,325 1 1,293,032 1 13,619 — — 13,621

Issuanceofcommonstockawards 153,547 — — — 24 — — 24

ConversionofClassBcommonstocktoClassAcommonstock 1,329,948 1 (1,329,948) (1) — — — —

Share-basedcompensationexpenserelatedtoshare-basedawardstoemployeesandemployeestockpurchaseplan — — — — 25,448 — — 25,448

Equitycomponentofconvertibledebt — — — — 114,199 — — 114,199

Equitycomponentofdeferredfinancingcostsforconvertibledebt — — — — (3,983) — — (3,983)

Unrealizedlossesonshort-terminvestments — — — — — — (67) (67)

Netloss — — — — — (142,669) — (142,669)BalanceatDecember31,2015 127,371,478 $ 127 15,870,356 $ 16 $ 1,205,183 $ (1,110,115) $ (86) $ 95,125

TableofContents

IronwoodPharmaceuticals,Inc.

ConsolidatedStatementsofCashFlows

(Inthousands)

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

F-8

YearEndedDecember31, 2015 2014 2013 Cashflowsfromoperatingactivities: Netloss $ (142,669) $ (189,618) $ (272,812)Adjustmentstoreconcilenetlosstonetcashusedinoperatingactivities: Depreciationandamortization 11,630 12,331 11,729(Gain)lossondisposalofpropertyandequipment (196) 119 610Share-basedcompensationexpense 25,469 26,184 19,829Changeinfairvalueofnotehedgewarrants 4,479 — —Changeinfairvalueofconvertiblenotehedges 5,449 — —Write-downofinventorytonetrealizablevalueandlossonnon-cancellablepurchasecommitments 17,638 20,292 —Lossonfacilitysubleases 296 2,573 —Accretionofdiscount/premiumoninvestmentsecurities 1,114 1,085 1,254Non-cashinterestexpense 8,102 1,566 1,719Changesinassetsandliabilities: Accountsreceivableandrelatedpartyaccountsreceivable (28,679) (23,680) (1,726)Restrictedcash (600) — (500)Prepaidexpensesandothercurrentassets 2,568 (3,947) (52)Inventory — (3,078) (11,915)Otherassets 414 (2,876) 116Accountspayable,relatedpartyaccountspayableandaccruedexpenses (1,551) 1,425 (11,724)Accruedresearchanddevelopmentcosts 671 162 (2,252)Deferredrevenue (7,191) 744 (4,915)Deferredrent (3,871) 1,811 (2,716)Otherliabilities — (661) —Netcashusedinoperatingactivities (106,927) (155,568) (273,355)

Cashflowsfrominvestingactivities: Purchasesofavailable-for-salesecurities (281,958) (253,995) (287,943)Salesandmaturitiesofavailable-for-salesecurities 276,707 200,964 196,102Purchasesofpropertyandequipment (4,049) (3,538) (9,592)Proceedsfromsaleofpropertyandequipment 147 — —

Netcashusedininvestingactivities (9,153) (56,569) (101,433)Cashflowsfromfinancingactivities: Proceedsfromissuanceofconvertibleseniornotes 335,699 — —Costsassociatedwithissuanceofconvertibleseniornotes (11,730) — —Proceedsfromissuanceofcommonstock — 190,428 137,766ProceedsfromissuanceofPhaRMAnotespayable — — 175,000CostsassociatedwithissuanceofPhaRMAnotespayable — — (7,717)Proceedsfromissuanceofnotehedgewarrants 70,849 — —Purchaseofconvertiblenotehedges (91,915) — —Proceedsfromexerciseofstockoptions,andsharesissuedunderemployeestockpurchaseplan 14,196 22,741 9,297Paymentsoncapitalleaseobligations (1,317) (1,062) (768)PrincipalpaymentsonPhaRMAnotespayable (12,712) (1,163) —

Netcashprovidedbyfinancingactivities 303,070 210,944 313,578Netincrease(decrease)incashandcashequivalents 186,990 (1,193) (61,210)Cashandcashequivalents,beginningofperiod 74,297 75,490 136,700Cashandcashequivalents,endofperiod $ 261,287 $ 74,297 $ 75,490

Supplementalcashflowdisclosure: Cashpaidforinterest $ 22,742 $ 19,606 $ 18,428

Non-cashinvestingactivities Purchasesundercapitalleases $ 2,957 $ 766 $ 4,472Disposalsundercapitalleases $ (2,529) $ — $ —Fixedassetpurchasesinaccountspayableandaccruedexpenses $ 98 $ 1,592 $ 261

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements

1.NatureofBusiness

IronwoodPharmaceuticals,Inc.(the"Company")isacommercialbiotechnologycompanyleveragingitsprovendevelopmentandcommercialcapabilitiesasitseekstobringmultiplemedicinestopatients.TheCompanyisadvancingtwotherapeuticplatforms,whichincludeproductopportunitiesinareasoflargeunmetneed,includingirritablebowelsyndromewithconstipation("IBS-C)andchronicidiopathicconstipation("CIC"),vascularandfibroticdiseases,andrefractorygastroesophagealrefluxdisease("GERD").

TheCompany'sfirstandto-dateonlycommercialproduct,linaclotide,isavailabletoadultmenandwomensufferingfromIBS-CorCICintheUnitedStates("U.S.")underthetrademarkednameLINZESS®,andisavailabletoadultmenandwomensufferingfromIBS-CincertainEuropeancountriesunderthetrademarkednameCONSTELLA®.TheCompanyanditsU.S.partnerAllerganplc(togetherwithitsaffiliates,"Allergan"),formerlyActavisplc,begancommercializingLINZESSintheU.S.inDecember2012.UndertheCompany'scollaborationwithAllerganforNorthAmerica,totalnetsalesofLINZESSintheU.S.,asrecordedbyAllergan,arereducedbycommercialcostsincurredbyeachparty,andtheresultingamountissharedequallybetweentheCompanyandAllergan.

TheCompany'sformerEuropeanpartner,Almirall,S.A.("Almirall"),begancommercializingCONSTELLAinEuropeforthesymptomatictreatmentofmoderatetosevereIBS-Cinadultsinthesecondquarterof2013.InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,andtheCompanyandAllerganenteredintoanamendmenttotheEuropeanlicenseagreement(Note4).Currently,CONSTELLAiscommerciallyavailableincertainEuropeancountries,includingtheUnitedKingdom,ItalyandSpain.

WithintheCompany'sgastrointestinal("GI")platform,theCompanyandAllerganareexploringdevelopmentopportunitiestoenhancetheclinicalprofileofLINZESSbyseekingtoexpanditsutilitywithinIBS-CandCIC,aswellasstudyinglinaclotideinadditionalindicationsandpopulationstoassessitspotentialtotreatvariousGIconditions.TheCompanyandAllerganarealsodevelopinglinaclotidecolonicrelease,atargetedoraldeliveryformulationoflinaclotidedesignedtopotentiallyimproveabdominalpainreliefinadultIBS-Cpatients.TheCompanyisalsoexploringlinaclotidecolonicreleaseforuseinadditionalGIdisorderswherelowerabdominalpainisapredominantsymptomsuchasIBS-mixed("IBS-M"),ulcerativecolitisanddiverticulitis,amongothers.LinaclotideisalsobeingdevelopedandcommercializedinotherpartsoftheworldbycertainoftheCompany'spartners.Inaddition,theCompanyisadvancingotherGIdevelopmentprogramsforindicationssuchasrefractoryGERDanddiabeticgastroparesis.

WithintheCompany'svascular/fibroticplatform,itisleveragingitspharmacologicalexpertiseinguanylatecyclase("GC")pathwaysgainedthroughthediscoveryanddevelopmentoflinaclotidetoadvancedevelopmentprogramstargetingsolubleguanylatecyclase("sGC").sGCisavalidatedmechanismwiththepotentialforbroadtherapeuticutilityandmultipleopportunitiesforproductdevelopmentinvascularandfibroticdiseases,aswellasothertherapeuticareas.

InadditiontotheU.S.andEurope,theCompanyhasenteredintopartnershipstodevelopandcommercializelinaclotideinotherpartsoftheworld.InDecember2013andFebruary2014,linaclotidewasapprovedinCanadaandMexico,respectively,asatreatmentforadultwomenandmensufferingfromIBS-CorCIC.AllerganhasexclusiverightstocommercializelinaclotideinCanadaasCONSTELLAand,throughasublicensefromAllergan,AlmirallhadexclusiverightstocommercializelinaclotideinMexicoasLINZESS.InMay2014,AllerganbegancommercializingCONSTELLAin

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NotestoConsolidatedFinancialStatements(Continued)

1.NatureofBusiness(Continued)

CanadaandinJune2014,AlmirallbegancommercializingLINZESSinMexico.InOctober2015,AlmirallandAllerganterminatedthesublicensearrangementwithrespecttoMexico,returningtheexclusiverightstocommercializeCONSTELLAinMexicotoAllergan.CONSTELLAcontinuestobeavailabletoadultIBS-CpatientsinMexico.

AstellasPharmaInc.("Astellas"),theCompany'spartnerinJapan,isdevelopinglinaclotideforthetreatmentofpatientswithIBS-Candchronicconstipationinitsterritory.InNovember2015,theCompanyandAstellasreportedpositivetop-linedatafromAstellas'PhaseIIIclinicaltrialoflinaclotideinadultpatientswithIBS-CforJapan.InOctober2012,theCompanyenteredintoacollaborationagreementwithAstraZenecaAB("AstraZeneca")toco-developandco-commercializelinaclotideinChina,HongKongandMacau,withAstraZenecahavingprimaryresponsibilityforthelocaloperationalexecution.InDecember2015,theCompanyandAstraZenecafiledforapprovalwiththeChinaFoodandDrugAdministration("CFDA")tomarketlinaclotideinChina.TheCompanycontinuestoassessalternativestobringlinaclotidetoIBS-CandCICsufferersinthepartsoftheworldoutsideofitspartneredterritories.

InMarch2015,theCompanyandExactSciencesCorp,("ExactSciences"),enteredintoanagreementtoco-promoteCologuard®,thefirstandonlyFDA-approvednoninvasivestoolDNAscreeningtestforcolorectalcancer,andinAugust2015,theCompanyandAllerganenteredintoanagreementfortheco-promotionofVIBERZI™(eluxadoline)intheU.S.,Allergan'streatmentforadultssufferingfromIBSwithdiarrhea("IBS-D").

InNovember2015,AllerganandPfizerInc.enteredintoadefinitiveagreementprovidingforthecombinationofthetwocompanies.TheCompany'scollaborationforthedevelopmentandcommercializationoflinaclotide,aswellastheCompany'sagreementtoco-promoteVIBERZI,remainsineffect.

TheseagreementsaremorefullydescribedinNote4,Collaboration,LicenseandCo-promotionAgreements,totheseconsolidatedfinancialstatements.

InJune2015,theCompanyissuedapproximately$335.7millioninaggregateprincipalamountof2.25%ConvertibleSeniorNotesdue2022(the"2022Notes").TheCompanyreceivednetproceedsofapproximately$324.0millionfromthesaleofthe2022Notes,afterdeductingfeesandexpensesofapproximately$11.7million(Note10).

TheCompanywasincorporatedinDelawareonJanuary5,1998asMicrobia,Inc.OnApril7,2008,theCompanychangeditsnametoIronwoodPharmaceuticals,Inc.Todate,theCompanyhasdedicatedsubstantiallyallofitsactivitiestotheresearch,developmentandcommercializationoflinaclotide,aswellastotheresearchanddevelopmentofitsotherproductcandidates.TheCompanyhasincurredsignificantoperatinglossessinceitsinceptionin1998.AsofDecember31,2015,theCompanyhadanaccumulateddeficitofapproximately$1.1billion.

2.SummaryofSignificantAccountingPolicies

PrinciplesofConsolidation

TheaccompanyingconsolidatedfinancialstatementsincludetheaccountsofIronwoodPharmaceuticals,Inc.anditswhollyownedsubsidiaries,IronwoodPharmaceuticalsSecurities

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

CorporationandIronwoodPharmaceuticalsGmbH.Allintercompanytransactionsandbalancesareeliminatedinconsolidation.

UseofEstimates

ThepreparationofconsolidatedfinancialstatementsinaccordancewithU.S.generallyacceptedaccountingprinciplesrequirestheCompany'smanagementtomakeestimatesandjudgmentsthatmayaffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsandliabilitiesatthedateoftheconsolidatedfinancialstatements,andtheamountsofrevenuesandexpensesduringthereportedperiods.Onanon-goingbasis,theCompany'smanagementevaluatesitsestimates,judgmentsandmethodologies.Significantestimatesandassumptionsintheconsolidatedfinancialstatementsincludethoserelatedtorevenuerecognition,available-for-salesecurities,inventoryvaluation,andrelatedreserves;impairmentoflong-livedassets;initialvaluationproceduresfortheissuanceofconvertiblenotes;fairvalueofderivatives;balancesheetclassificationofnotespayableandconvertiblenotes;incometaxes,includingthevaluationallowancefordeferredtaxassets;researchanddevelopmentexpenses;contingenciesandshare-basedcompensation.TheCompanybasesitsestimatesonhistoricalexperienceandonvariousotherassumptionsthatarebelievedtobereasonable,theresultsofwhichformthebasisformakingjudgmentsaboutthecarryingvaluesofassetsandliabilities.Actualresultsmaydiffermateriallyfromtheseestimatesunderdifferentassumptionsorconditions.Changesinestimatesarereflectedinreportedresultsintheperiodinwhichtheybecomeknown.

CashandCashEquivalents

TheCompanyconsidersallhighlyliquidinvestmentinstrumentswitharemainingmaturitywhenpurchasedofthreemonthsorlesstobecashequivalents.InvestmentsqualifyingascashequivalentsprimarilyconsistofmoneymarketfundsandU.S.government-sponsoredsecurities.Thecarryingamountofcashequivalentsapproximatesfairvalue.Theamountofcashequivalentsincludedincashandcashequivalentswasapproximately$258.2millionandapproximately$61.0millionatDecember31,2015and2014,respectively.

RestrictedCash

TheCompanyiscontingentlyliableunderunusedlettersofcreditwithabank,relatedtotheCompany'sfacilityleaseandautomobileleaseagreements,intheamountofapproximately$8.7millionandapproximately$8.1millionasofDecember31,2015and2014,respectively.Asaresult,theCompanyhasrestrictedcashofapproximately$8.7millionandapproximately$8.1millionasofDecember31,2015and2014,respectively,securingtheselettersofcredit.Thecashwillberestricteduntiltheterminationoftheleasearrangements.

Available-for-SaleSecurities

TheCompanyclassifiesallshort-terminvestmentswitharemainingmaturitywhenpurchasedofgreaterthanthreemonthsasavailable-for-sale.Available-for-salesecuritiesarerecordedatfairvalue,withtheunrealizedgainsandlossesreportedinothercomprehensiveincome(loss).Theamortizedcostofdebtsecuritiesinthiscategoryisadjustedfortheamortizationofpremiumsandaccretionofdiscountstomaturity.Suchamortizationisincludedininterestandinvestmentincome.Realizedgains

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

andlosses,interest,dividends,anddeclinesinvaluejudgedtobeotherthantemporaryonavailable-for-salesecuritiesareincludedininterestandinvestmentincome.

Thecostofsecuritiessoldisbasedonthespecificidentificationmethodforpurposesofrecordingrealizedgainsandlosses.Todeterminewhetheranother-than-temporaryimpairmentexists,theCompanyconsiderswhetherithastheabilityandintenttoholdtheinvestmentuntilamarketpricerecovery,andwhetherevidenceindicatingtherecoverabilityofthecostoftheinvestmentoutweighsevidencetothecontrary.Therewerenoother-than-temporaryimpairmentsfortheyearsendedDecember31,2015,2014or2013.

Inventory

Inventoryisstatedatthelowerofcostormarketwithcostdeterminedunderthefirst-in,first-outbasis.

TheCompanyevaluatesinventorylevelsquarterlyandanyinventorythathasacostbasisinexcessofitsexpectednetrealizablevalue,inventorythatbecomesobsolete,inventoryinexcessofexpectedsalesrequirements,inventorythatfailstomeetcommercialsalespecificationsorisotherwiseimpairediswrittendownwithacorrespondingchargetothestatementofoperationsintheperiodthattheimpairmentisfirstidentified.TheCompanyalsoassesses,onaquarterlybasis,whetherithasanyexcessnon-cancelablepurchasecommitmentsresultingfromitsminimumsupplyagreementswithitssuppliersoflinaclotideactivepharmaceuticalingredient("API").TheCompanyreliesondatafromseveralsourcestoestimatethenetrealizablevalueofinventoryandnon-cancelablepurchasecommitments,includingpartnerforecastsofprojectedinventorypurchasesthatarereceivedquarterly,theCompany'sinternalforecastsandrelatedprocess,historicalsalesbygeographicregion,andthestatusofandprogresstowardcommercializationoflinaclotideinpartneredterritories.

TheCompanycapitalizesinventoriesmanufacturedinpreparationforinitiatingsalesofaproductcandidatewhentherelatedproductcandidateisconsideredtohaveahighlikelihoodofregulatoryapprovalandtherelatedcostsareexpectedtoberecoverablethroughsalesoftheinventories.Indeterminingwhetherornottocapitalizesuchinventories,theCompanyevaluates,amongotherfactors,informationregardingtheproductcandidate'ssafetyandefficacy,thestatusofregulatorysubmissionsandcommunicationswithregulatoryauthoritiesandtheoutlookforcommercialsales,includingtheexistenceofcurrentoranticipatedcompetitivedrugsandtheavailabilityofreimbursement.Inaddition,theCompanyevaluatesrisksassociatedwithmanufacturingtheproductcandidate,includingtheabilityoftheCompany'sthird-partysupplierstocompletethevalidationbatches,andtheremainingshelflifeoftheinventories.

Costsassociatedwithdevelopmentalproductspriortosatisfyingtheinventorycapitalizationcriteriaarechargedtoresearchanddevelopmentexpenseasincurred.

ConcentrationsofSuppliers

TheCompanyreliesonthird-partymanufacturersanditscollaborationpartnerstomanufacturethelinaclotideAPIandfinallinaclotidedrugproduct.Currently,therearetwothird-partymanufacturersapprovedfortheproductionofthelinaclotideAPIinthreefacilities.EachofAllerganandAstellasisresponsiblefordrugproductmanufacturingoflinaclotideintofinishedproductforitsrespectiveterritory.UndertheCompany'scollaborationwithAstraZeneca,theCompanyisresponsible

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

fordrugproductandfinishedgoodsmanufacturingforChina,HongKongandMacau.TheCompanyalsohasanagreementwithanotherindependentthirdpartytoserveasasecondsourceofdrugproductmanufacturingoflinaclotideforitspartneredterritories.IfanyoftheCompany'ssuppliersweretolimitorterminateproductionorotherwisefailtomeetthequalityordeliveryrequirementsneededtosatisfythesupplycommitments,theprocessoflocatingandqualifyingalternatesourcescouldrequireuptoseveralmonths,duringwhichtimetheCompany'sproductioncouldbedelayed.SuchdelayscouldhaveamaterialadverseeffectontheCompany'sbusiness,financialpositionandresultsofoperations.

AccountsReceivableandRelatedValuationAccount

TheCompanymakesjudgmentsastoitsabilitytocollectoutstandingreceivablesandprovidesanallowanceforreceivableswhencollectionbecomesdoubtful.Provisionsaremadebaseduponaspecificreviewofallsignificantoutstandinginvoicesandtheoverallqualityandageofthoseinvoicesnotspecificallyreviewed.TheCompany'sreceivablesprimarilyrelatetoamountsreimbursedunderitscollaboration,licenseandco-promotionagreements.TheCompanybelievesthatcreditrisksassociatedwiththesepartnersarenotsignificant.Todate,theCompanyhasnothadanywrite-offsofbaddebt,andtheCompanydidnothaveanallowancefordoubtfulaccountsasofDecember31,2015and2014.

ConcentrationsofCreditRisk

FinancialinstrumentsthatsubjecttheCompanytocreditriskprimarilyconsistofcashandcashequivalents,restrictedcash,available-for-salesecurities,andaccountsreceivable.TheCompanymaintainsitscashandcashequivalentbalanceswithhigh-qualityfinancialinstitutionsand,consequently,theCompanybelievesthatsuchfundsaresubjecttominimalcreditrisk.TheCompany'savailable-for-saleinvestmentsprimarilyconsistofU.S.TreasurysecuritiesandcertainU.S.government-sponsoredsecuritiesandpotentiallysubjecttheCompanytoconcentrationsofcreditrisk.TheCompanyhasadoptedaninvestmentpolicywhichlimitstheamountstheCompanymayinvestinanyonetypeofinvestment,andrequiresallinvestmentsheldbytheCompanytobeatleastA+rated,therebyreducingcreditriskexposure.

Accountsreceivable,includingrelatedpartyaccountsreceivable,primarilyconsistofamountsdueunderthelinaclotidecollaborationagreementwithAllerganforNorthAmerica,thelinaclotidelicenseagreementwithAstellasforJapanandtheco-promotionagreementwithExactSciencesforitsCologuardproduct(Note4)forwhichtheCompanydoesnotobtaincollateral.AccountsreceivableorpayabletoorfromAllerganandAlmirallarepresentedasrelatedpartytransactionsontheconsolidatedbalancesheetsasbothentitiesowncommonstockoftheCompany.

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

ThepercentagesofrevenuerecognizedfromsignificantcustomersoftheCompanyintheyearsendedDecember31,2015,2014and2013aswellastheaccountreceivablebalances,netofanypayablesdue,atDecember31,2015and2014areincludedinthefollowingtable:

FortheyearsendedDecember31,2015,2014and2013,noadditionalcustomersaccountedformorethan10%oftheCompany'srevenue.

DeferredFinancingCosts

DeferredfinancingcostsincludecostsdirectlyattributabletotheCompany'sofferingsofitsequitysecuritiesanditsdebtfinancings.Costsattributabletoequityofferingsarechargedagainsttheproceedsoftheofferingoncetheofferingiscompleted.Costsattributabletodebtfinancingsaredeferredandamortizedoverthetermofthedebtusingtheeffectiveinterestratemethod.Aportionofthedeferredfinancingcostincurredinconnectionwiththe2022Noteswasdeemedtorelatetotheequitycomponentandwasallocatedtoadditionalpaidincapital.

InApril2015,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandardsUpdate("ASU")No.2015-03,SimplifyingthePresentationofDebtIssuanceCosts("ASU2015-03").ASU2015-03requiresdebtissuancecoststobepresentedinanentity'sbalancesheetasadirectdeductionfromtheassociateddebtliability.WhilethestandardisretrospectivelyeffectiveforannualreportingperiodsbeginningafterDecember15,2015,earlyadoptionispermittedforanyannualreportingperiodorinterimperiodforwhichtheentity'sfinancialstatementshavenotyetbeenissued.

TheCompanyelectedearlyadoptionofASU2015-03inthethreemonthsendedJune30,2015,whichresultedinabalancesheetreclassificationofissuancecostsinconnectionwiththe11%PhaRMANotesdue2024(the"PhaRMANotes")ofapproximately$1.4millionrecordedinprepaidexpensesandothercurrentassetsandapproximately$2.8millioninotherassetstoareductioninPhaRMANotespayableasofDecember31,2014.Thefinancingcostsincurredinconnectionwiththe

F-14

AccountsReceivable Revenue December31, YearsEndedDecember31, 2015 2014 2015 2014 2013 CollaborativePartner: LinaclotideAgreements: Allergan(NorthAmerica) 95% 100% 90% 62% 13%Almirall(Europe)(1) —% —% —% 10% 57%Astellas(Japan) 2% —% 5% 23% 25%AstraZeneca(China,HongKongandMacau)(2) 1% —% 2% 5% 5%

Co-promotionAgreements: ExactSciences(Cologuard) 2% —% 3% —% —%

(1) InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan.TherewerenoaccountsreceivableduefromAlmirallasofDecember31,2015.

(2) AtDecember31,2014,theCompanywasinanetpayablepositionwithAstraZeneca;assuch,therewasnoaccountsreceivableduefromAstraZenecaasofDecember31,2014.

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

issuanceoftheCompany's2022NoteswererecordedasareductioninthecarryingvalueofsuchdebtinaccordancewithASU2015-03.TheCompany'sadoptionofthisstandarddidnothaveasignificantimpactonitsresultsofoperationsorcashflowsfortheyearendedDecember31,2015.

The2022NotesandPhaRMANotesaremorefullydescribedinNote10,NotesPayable,totheseconsolidatedfinancialstatements.

DerivativeAssetsandLiabilities

InJune2015,inconnectionwiththeissuanceofthe2022Notes,theCompanyenteredintoconvertiblenotehedgetransactions(the"ConvertibleNoteHedges").ConcurrentlywithenteringintotheConvertibleNoteHedges,theCompanyalsoenteredintocertainwarranttransactionsinwhichitsoldnotehedgewarrants(the"NoteHedgeWarrants")totheConvertibleNoteHedgecounterpartiestoacquire20,249,665sharesoftheCompany'sClassAcommonstock,subjecttocustomaryanti-dilutionadjustments(Note10).TheseinstrumentsarederivativefinancialinstrumentsunderAccountingStandardsCodification("ASC")Topic815,DerivativesandHedging("ASC815").

ThesederivativesarerecordedasassetsorliabilitiesatfairvalueeachreportingperiodandthefairvalueisdeterminedusingtheBlack-Scholesoption-pricingmodel.Thechangesinfairvaluearerecordedasacomponentofother(expense)incomeintheconsolidatedstatementsofoperations.SignificantinputsusedtodeterminethefairvalueincludethepricepershareoftheCompany'sClassAcommonstockonthedateofvaluation,timetomaturityofthederivativeinstruments,thestrikepricesofthederivativeinstruments,therisk-freeinterestrate,andthevolatilityoftheCompany'sClassAcommonstock.ChangestotheseinputscouldmateriallyaffectthevaluationoftheConvertibleNoteHedgesandNoteHedgeWarrantsinfutureperiods.

RevenueRecognition

TheCompany'srevenueisgeneratedprimarilythroughcollaborativeresearchanddevelopment,licensingandco-promotionagreements.Thetermsoftheseagreementscontainmultipledeliverableswhichmayinclude(i)licenses,(ii)researchanddevelopmentactivities,includingparticipationonjointsteeringcommittees,(iii)themanufactureoffinisheddrugproduct,API,ordevelopmentmaterialsforapartnerwhicharereimbursedatacontractuallydeterminedrate,and(iv)co-promotionactivitiesbytheCompany'sclinicalsalesspecialists.Non-refundablepaymentstotheCompanyundertheseagreementsmayinclude(i)up-frontlicensefees,(ii)paymentsforresearchanddevelopmentactivities,(iii)paymentsforthemanufactureoffinisheddrugproduct,API,ordevelopmentmaterials,(iv)paymentsbasedupontheachievementofcertainmilestones,(v)paymentsforsalesdetailing,promotionalsupportservicesandmedicaleducationinitiatives,and(vi)royaltiesonproductsales.Additionally,theCompanymayreceiveitsshareofthenetprofitsorbearitsshareofthenetlossesfromthesaleoflinaclotideintheU.S.andforChina,HongKongandMacauthroughitscollaborationswithAllerganandAstraZeneca,respectively.

AtDecember31,2015,theCompanyhadcollaborationagreementswithAllergan(NorthAmerica)andAstraZeneca(China,HongKongandMacau),aswellaslicenseagreementswithAllergan(Europe)andAstellas(Japan).Additionally,theCompanyhadco-promotionagreementswithAllerganforVIBERZIandExactSciencesforCologuardintheU.S.(Note4).

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

TheCompanyrecognizesrevenuewhenthereispersuasiveevidencethatanarrangementexists,serviceshavebeenrenderedordeliveryhasoccurred,thepriceisfixedordeterminable,andcollectionisreasonablyassured.

ForcertainoftheCompany'sarrangements,particularlythelicenseagreementwithAllerganfortheEuropeanterritory,itisrequiredthattaxesbewithheldonpaymentstotheCompany.TheCompanyhasadoptedapolicytorecognizerevenuenetofthesetaxwithholdings.

AgreementsEnteredintoPriortoJanuary1,2011

ForarrangementsthatincludemultipledeliverablesandwereenteredintopriortoJanuary1,2011,theCompanyfollowstheprovisionsofASCTopic605-25,RevenueRecognition—Multiple-ElementArrangements("ASC605-25"),inaccountingfortheseagreements.UnderASC605-25,theCompanywasrequiredtoidentifythedeliverablesincludedwithintheagreementandevaluatewhichdeliverablesrepresentseparateunitsofaccounting.Collaborativeresearchanddevelopmentandlicensingagreementsthatcontainedmultipledeliverablesweredividedintoseparateunitsofaccountingwhenthefollowingcriteriaweremet:

• Deliveredelement(s)hadvaluetothecollaboratoronastandalonebasis,

• Therewasobjectiveandreliableevidenceofthefairvalueoftheundeliveredobligation(s),and

• Ifthearrangementincludedageneralrightofreturnrelativetothedelivereditem(s),deliveryorperformanceoftheundelivereditem(s)wasconsideredprobableandsubstantiallywithintheCompany'scontrol.

TheCompanyallocatedarrangementconsiderationamongtheseparateunitsofaccountingeitheronthebasisofeachunit'srespectivefairvalueorusingtheresidualmethod,andappliedtheapplicablerevenuerecognitioncriteriatoeachoftheseparateunits.Iftheseparationcriteriawerenotmet,revenueofthecombinedunitofaccountingwasrecordedbasedonthemethodappropriateforthelastdelivereditem.

Up-FrontLicenseFees

TheCompanyrecognizesrevenuefromnonrefundable,up-frontlicensefeesonastraight-linebasisoverthecontractedorestimatedperiodofperformance,whichistypicallytheperiodoverwhichtheresearchanddevelopmentisexpectedtooccurormanufacturingservicesareexpectedtobeprovided.Accordingly,theCompanyisrequiredtomakeestimatesregardingthedrugdevelopmentandcommercializationtimelinesfordrugsanddrugcandidatesbeingdevelopedpursuanttoanyapplicableagreement.Thedeterminationofthelengthoftheperiodoverwhichtorecognizetherevenueissubjecttojudgmentandestimationandcanhaveanimpactontheamountofrevenuerecognizedinagivenperiod.Quarterly,theCompanyreassessesitsperiodofsubstantialinvolvementoverwhichtheCompanyamortizesitsup-frontlicensefeesandmakesadjustmentsasappropriate.TheCompany'sestimatesregardingtheperiodofperformanceunderitscollaborativeresearchanddevelopmentandlicensingagreementshavechangedinthepastandmaychangeinthefuture.AnychangeintheCompany'sestimatescouldresultinsubstantialchangestotheCompany'sresultsfortheperiodoverwhichtherevenuesfromanup-frontlicensefeearerecognized.Intheeventthatanarrangementweretobeterminated,theCompanywouldrecognizeasrevenueanyportionoftheup-frontfeethathadnotpreviouslybeenrecordedasrevenue,butwasclassifiedasdeferredrevenueatthedateofsuch

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2.SummaryofSignificantAccountingPolicies(Continued)

termination.AtDecember31,2015,oftheCompany'slinaclotidecollaborationandlicensearrangements,onlyaportionofAstellas'up-frontlicensefeeremaineddeferred.Theup-frontlicensefeesundertheAllergancollaborationforNorthAmericaandtheAllergancollaborationforEurope(previouslywithAlmirall)werefullyamortizedatDecember31,2015,astheperiodofperformanceunderthosearrangementsendedinthethreemonthsendedSeptember30,2012.

AgreementsEnteredintoorMateriallyModifiedonorafterJanuary1,2011

TheCompanyevaluatesrevenuefromnewmultipleelementagreementsenteredintoonorafterJanuary1,2011underASUNo.2009-13,Multiple-DeliverableRevenueArrangements("ASU2009-13").TheCompanyalsoevaluateswhetheramendmentstoitsmultipleelementarrangementsareconsideredmaterialmodificationsthataresubjecttotheapplicationofASU2009-13.Thisevaluationrequiresmanagementtoassessallrelevantfactsandcircumstancesandtomakesubjectivedeterminationsandjudgments.Aspartofthisassessment,theCompanyconsiderswhetherthemodificationresultsinamaterialchangetothearrangement,includingwhetherthereisachangeintotalarrangementconsiderationthatismorethaninsignificant,whethertherearechangesinthedeliverablesincludedinthearrangement,whetherthereisachangeinthetermofthearrangementandwhetherthereisasignificantmodificationtothedeliveryscheduleforcontracteddeliverables.

WhenevaluatingmultipleelementarrangementsunderASU2009-13,theCompanyconsiderswhetherthedeliverablesunderthearrangementrepresentseparateunitsofaccounting.Thisevaluationrequiressubjectivedeterminationsandrequiresmanagementtomakejudgmentsabouttheindividualdeliverablesandwhethersuchdeliverablesareseparablefromtheotheraspectsofthecontractualrelationship.Indeterminingtheunitsofaccounting,managementevaluatescertaincriteria,includingwhetherthedeliverableshavestandalonevalue,basedontheconsiderationoftherelevantfactsandcircumstancesforeacharrangement.Factorsconsideredinthisdeterminationincludetheresearch,manufacturingandcommercializationcapabilitiesofthepartnerandtheavailabilityofpeptideresearchandmanufacturingexpertiseinthegeneralmarketplace.Inaddition,theCompanyconsiderswhetherthecollaboratorcanusethelicenseorotherdeliverablesfortheirintendedpurposewithoutthereceiptoftheremainingelements,andwhetherthevalueofthedeliverableisdependentontheundelivereditemsandwhetherthereareothervendorsthatcanprovidetheundelivereditems.

Theconsiderationreceivedisallocatedamongtheseparateunitsofaccountingusingtherelativesellingpricemethod,andtheapplicablerevenuerecognitioncriteriaareappliedtoeachoftheseparateunits.

TheCompanydeterminestheestimatedsellingpricefordeliverablesusingvendor-specificobjectiveevidence("VSOE")ofsellingprice,ifavailable,third-partyevidence("TPE")ofsellingpriceifVSOEisnotavailable,orbestestimateofsellingprice("BESP")ifneitherVSOEnorTPEisavailable.DeterminingtheBESPforadeliverablerequiressignificantjudgment.TheCompanyusesBESPtoestimatethesellingpriceforlicensestotheCompany'sproprietarytechnology,sincetheCompanyoftendoesnothaveVSOEorTPEofsellingpriceforthesedeliverables.InthosecircumstanceswheretheCompanyutilizesBESPtodeterminetheestimatedsellingpriceofalicensetotheCompany'sproprietarytechnology,theCompanyconsidersmarketconditionsaswellasentity-specificfactors,includingthosefactorscontemplatedinnegotiatingtheagreementsaswellasinternallydevelopedmodelsthatincludeassumptionsrelatedtothemarketopportunity,estimateddevelopmentcosts,probabilityofsuccessandthetimeneededtocommercializeaproductcandidatepursuanttothe

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

license.InvalidatingtheCompany'sBESP,theCompanyevaluateswhetherchangesinthekeyassumptionsusedtodeterminetheBESPwillhaveasignificanteffectontheallocationofarrangementconsiderationbetweenmultipledeliverables.

AtDecember31,2015,theCompany'scollaborationagreementwithAstraZenecaforlinaclotideandco-promotionagreementswithAllerganforVIBERZIandExactSciencesforCologuardintheU.S.areeachbeingaccountedforunderASU2009-13.

Up-FrontLicenseFees

Whenmanagementbelievesthelicensetoitsintellectualpropertyhasstand-alonevalue,theCompanygenerallyrecognizesrevenueattributedtothelicenseupondelivery.Whenmanagementbelievesthelicensetoitsintellectualpropertydoesnothavestand-alonevaluefromtheotherdeliverablestobeprovidedinthearrangement,itiscombinedwithotherdeliverablesandtherevenueofthecombinedunitofaccountingisrecordedbasedonthemethodappropriateforthelastdelivereditem.

Milestones

Attheinceptionofeacharrangementthatincludespre-commercialmilestonepayments,theCompanyevaluateswhethereachpre-commercialmilestoneissubstantive,inaccordancewithASUNo.2010-17,RevenueRecognition—MilestoneMethod("ASU2010-17"),adoptedonJanuary1,2011.Thisevaluationincludesanassessmentofwhether(a)theconsiderationiscommensuratewitheither(1)theentity'sperformancetoachievethemilestone,or(2)theenhancementofthevalueofthedelivereditem(s)asaresultofaspecificoutcomeresultingfromtheentity'sperformancetoachievethemilestone,(b)theconsiderationrelatessolelytopastperformanceand(c)theconsiderationisreasonablerelativetoallofthedeliverablesandpaymenttermswithinthearrangement.TheCompanyevaluatesfactorssuchasthescientific,clinical,regulatory,commercialandotherrisksthatmustbeovercometoachievetherespectivemilestone,thelevelofeffortandinvestmentrequiredandwhetherthemilestoneconsiderationisreasonablerelativetoalldeliverablesandpaymenttermsinthearrangementinmakingthisassessment.AtDecember31,2015,theCompanyhadnopre-commercialmilestonesthatweredeemedsubstantive.Ifasubstantivepre-commercialmilestonewereachievedandcollectionoftherelatedreceivablewasreasonablyassured,theCompanywouldrecognizerevenuerelatedtothemilestoneinitsentiretyintheperiodinwhichthemilestonewasachieved.IftheCompanyweretoachievemilestonesthatareconsideredsubstantiveunderanyoftheCompany'scollaborations,theCompanymayexperiencesignificantfluctuationsincollaborativearrangementsrevenuefromquartertoquarterandyeartoyeardependingonthetimingofachievingsuchsubstantivemilestones.Inthosecircumstanceswhereapre-commercialmilestoneisnotsubstantive,theCompanyrecognizesasrevenueonthedatethemilestoneisachievedanamountequaltotheapplicablepercentageoftheperformanceperiodthathadelapsedasofthedatethemilestonewasachieved,withthebalancebeingdeferredandrecognizedovertheremainingperiodofperformance.Pre-commercialmilestonepaymentsreceivedpriortotheadoptionofASU2010-17continuetoberecognizedovertheremainingperiodofperformance.

Commercialmilestonesareaccountedforasroyaltiesandarerecordedasrevenueuponachievementofthemilestone,assumingallotherrevenuerecognitioncriteriaaremet.

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2.SummaryofSignificantAccountingPolicies(Continued)

NetProfitorNetLossSharing

InaccordancewithASC808Topic,CollaborativeArrangements,andASC605-45,PrincipalAgentConsiderations,theCompanyconsidersthenatureandcontractualtermsofthearrangementandthenatureoftheCompany'sbusinessoperationstodeterminetheclassificationofthetransactionsundertheCompany'scollaborationagreements.TheCompanyrecordsrevenuetransactionsgrossintheconsolidatedstatementsofoperationsifitisdeemedtheprincipalinthetransaction,whichincludesbeingtheprimaryobligorandhavingtherisksandrewardsofownership.

TheCompanyrecognizesitsshareofthepre-taxcommercialnetprofitornetlossgeneratedfromthesalesofLINZESSintheU.S.intheperiodtheproductsalesarereportedbyAllerganandrelatedcostofgoodssoldandselling,generalandadministrativeexpensesareincurredbytheCompanyanditscollaborationpartner.TheseamountsarepartiallydeterminedbasedonamountsprovidedbyAllerganandinvolvetheuseofestimatesandjudgments,suchasproductsalesallowancesandaccrualsrelatedtopromptpaymentdiscounts,chargebacks,governmentalandcontractualrebates,wholesalerfees,productreturns,andco-paymentassistancecosts,whichcouldbeadjustedbasedonactualresultsinthefuture.TheCompanyishighlydependentonAllerganfortimelyandaccurateinformationregardinganynetrevenuesrealizedfromsalesofLINZESSintheU.S.andthecostsincurredinsellingit,inordertoaccuratelyreportitsresultsofoperations.Fortheperiodscoveredintheconsolidatedfinancialstatementspresented,therehavebeennomaterialchangestopriorperiodestimatesofrevenues,costofgoodssoldorselling,generalandadministrativeexpensesassociatedwiththesalesofLINZESSintheU.S.However,iftheCompanydoesnotreceivetimelyandaccurateinformationorincorrectlyestimatesactivitylevelsassociatedwiththecollaborationatagivenpointintime,theCompanycouldberequiredtorecordadjustmentsinfutureperiods.

TheCompanyrecordsitsshareofthenetprofitsornetlossesfromthesalesofLINZESSintheU.S.onanetbasisandpresentsthesettlementpaymentstoandfromAllerganascollaborationexpenseorcollaborativearrangementsrevenue,asapplicable,astheCompanyisnottheprimaryobligoranddoesnothavetherisksandrewardsofownershipinthecollaborationagreementwithAllerganforNorthAmerica.TheCompanyandAllergansettlethecostsharingquarterly,suchthattheCompany'sstatementofoperationsreflects50%ofthepre-taxnetprofitorlossgeneratedfromsalesofLINZESSintheU.S.

RoyaltiesonProductSales

TheCompanyreceivesorexpectstoreceiveinthefutureroyaltyrevenuesundercertainoftheCompany'slicenseorcollaborationagreements.IftheCompanydoesnothaveanyfutureperformanceobligationsundertheselicenseorcollaborationsagreements,theCompanyrecordstheserevenuesasearned.TotheextenttheCompanydoesnothaveaccesstotheroyaltyreportsfromtheCompany'spartnersortheabilitytoaccuratelyestimatetheroyaltyrevenueintheperiodearned,theCompanyrecordssuchroyaltyrevenuesonequarterinarrears.

Other

TheCompanyproducesfinisheddrugproduct,APIanddevelopmentmaterialsforcertainofitspartners.

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2.SummaryofSignificantAccountingPolicies(Continued)

TheCompanyrecognizesrevenueonfinisheddrugproduct,APIanddevelopmentmaterialswhenthematerialhaspassedallqualitytestingrequiredforcollaboratoracceptance,deliveryhasoccurred,titleandriskoflosshavetransferredtothecollaborator,thepriceisfixedordeterminable,andcollectionisreasonablyassured.AsitrelatestodevelopmentmaterialsandAPIproducedforAstellas,theCompanyisreimbursedatacontractedrate.SuchreimbursementsareconsideredaspartofrevenuegeneratedpursuanttotheAstellaslicenseagreementandarepresentedascollaborativearrangementsrevenue.Anyfinisheddrugproduct,APIanddevelopmentmaterialscurrentlyproducedforAllerganfortheU.S.orAstraZenecaforChina,HongKongandMacauarerecognizedinaccordancewiththecost-sharingprovisionsoftheAllerganandAstraZenecacollaborationagreements,respectively.InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,andtheCompanyseparatelyenteredintoanamendmenttothelicenseagreementwithAllerganrelatingtothedevelopmentandcommercializationoflinaclotideinEurope.Pursuanttothetermsoftheamendment,AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEuropefromtheCompany,aswellastheassociatedcosts(Note4).

CostofRevenue

CostofrevenueisrecognizeduponshipmentoflinaclotideAPItocertainoftheCompany'slicensingpartnersoutsideoftheU.S.andconsistsoftheinternalandexternalcostsofproducingsuchAPI.

DuringtheyearendedDecember31,2015,theCompanyrecordedexpensesofapproximately$17.6millionforthewrite-downofinventoryandanaccrualforexcessnon-cancelableinventorypurchasecommitmentsrelatedtolinaclotideAPI.ThesechargesprimarilyrelatedtoareductionintheneartermdemandforecastforCONSTELLAintheEuropeanterritorybyAlmirall,theCompany'sformerEuropeanpartner;recentregulatorychangesmadebytheCFDAtothemarketingapprovalprocessinChina;andtheamendmenttothelicenseagreementwithAllerganpertainingtothedevelopmentandcommercializationoflinaclotideforEuropeexecutedinOctober2015.Pursuanttothetermsoftheamendment,AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEurope,aswellastheassociatedcosts,whichresultedinaccruingforalossonnon-cancelableinventorypurchasecommitmentsunderoneoftheCompany'sAPIsupplyagreementscoveringthecommercialsupplyoflinaclotideAPIfortheEuropeanmarket.

DuringtheyearendedDecember31,2014,theCompanywrote-downapproximately$20.3millionininventorytoanestimatednetrealizablevalueofapproximately$5.0million.Thiswrite-downwasprimarilyattributabletoAlmirall'sreducedinventorydemandforecastsfortheEuropeanterritory,mainlyduetothesuspensionofcommercializationofCONSTELLAinGermanyandachallengingcommercialenvironmentthroughoutEurope.

Thewrite-downofinventorytonetrealizablevalueandthelossonnon-cancelableinventorypurchasecommitmentsisrecordedasaseparatelineitemintheCompany'sConsolidatedStatementofOperations.ThesechargesaremorefullydescribedinNote7,Inventory,totheseconsolidatedfinancialstatements.

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

ResearchandDevelopmentCosts

TheCompanyexpensesresearchanddevelopmentcoststooperationsasincurred.TheCompanydefersandcapitalizesnonrefundableadvancepaymentsmadebytheCompanyforresearchanddevelopmentactivitiesuntiltherelatedgoodsarereceivedortherelatedservicesareperformed.

Researchanddevelopmentexpensesarecomprisedofcostsincurredinperformingresearchanddevelopmentactivities,includingsalary,benefitsandotheremployee-relatedexpenses;share-basedcompensationexpense;laboratorysuppliesandotherdirectexpenses;facilitiesexpenses;overheadexpenses;third-partycontractualcostsrelatingtononclinicalstudiesandclinicaltrialactivitiesandrelatedcontractmanufacturingexpenses,developmentofmanufacturingprocessesandregulatoryregistrationofthird-partymanufacturingfacilities;licensingfeesfortheCompany'sproductcandidates;andotheroutsideexpenses.

TheCompanyhasenteredintocollaborationagreementswithAllerganfortheU.S.andAstraZenecaforChina,HongKongandMacaupursuanttowhichitsharesresearchanddevelopmentexpenseswithitscollaborators.TheCompanyrecordsexpensesincurredunderthecollaborationarrangementsforsuchworkasresearchanddevelopmentexpense.Becausethecollaborationarrangementsarecost-sharingarrangements,theCompanyconcludedthatwhenthereisaperiodduringthecollaborationarrangementsduringwhichtheCompanyreceivespaymentsfromAllerganorAstraZenecaforsuchterritories,theCompanyrecordsthepaymentsbyAllerganorAstraZenecafortheirshareofthedevelopmenteffortasareductionofresearchanddevelopmentexpense.PaymentstoAllerganorAstraZenecaforsuchterritoriesarerecordedasincrementalresearchanddevelopmentexpense.

Selling,GeneralandAdministrativeExpenses

TheCompanyexpensesselling,generalandadministrativecoststooperationsasincurred.Selling,generalandadministrativeexpenseconsistsprimarilyofcompensation,benefitsandotheremployee-relatedexpensesforpersonnelintheCompany'sadministrative,finance,legal,informationtechnology,businessdevelopment,commercial,sales,marketing,communicationsandhumanresourcefunctions.OthercostsincludethelegalcostsofpursuingpatentprotectionoftheCompany'sintellectualproperty,generalandadministrativerelatedfacilitycosts,insurancecostsandprofessionalfeesforaccountingandlegalservices.

UnderthecollaborationagreementswithAllerganfortheU.S.andAstraZenecaforChina,HongKongandMacau,theCompanyisreimbursedforcertainselling,generalandadministrativeexpensesanditnetsthesereimbursementsagainstselling,generalandadministrativeexpensesasincurred.PaymentstoAllerganorAstraZenecaforsuchterritoriesarerecordedasincrementalselling,generalandadministrativeexpense.

Share-BasedCompensation

TheCompany'sstock-basedcompensationprogramsgrantawardswhichhaveincludedstockawards,restrictedstock,restrictedstockunits("RSUs"),andstockoptions.Share-basedcompensationisrecognizedasanexpenseinthefinancialstatementsbasedonthegrantdatefairvalueovertherequisiteserviceperiod.Forawardsthatvestbasedonserviceconditions,theCompanyusesthestraight-linemethodtoallocatecompensationexpensetoreportingperiods.Thegrantdatefairvalueof

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

optionsgrantediscalculatedusingtheBlack-Scholesoption-pricingmodel,whichrequirestheuseofsubjectiveassumptionsincludingvolatilityandexpectedterm,amongothers.ThefairvalueoftheCompany'sRSUsisbasedonthemarketvalueoftheCompany'sClassAcommonstockonthedateofgrant.CompensationexpenseforRSUsisrecognizedonastraight-linebasisovertheapplicableserviceperiod.

TheCompanyrecordstheexpenseforstockoptiongrantssubjecttoperformance-basedmilestonevestingusingtheacceleratedattributionmethodovertheremainingserviceperiodwhenmanagementdeterminesthatachievementofthemilestoneisprobable.Managementevaluateswhentheachievementofaperformance-basedmilestoneisprobablebasedontherelativesatisfactionoftheperformanceconditionsasofthereportingdate.

TheCompanyrecordstheexpenseofservicesrenderedbynon-employeesbasedontheestimatedfairvalueofthestockoptionusingtheBlack-Scholesoption-pricingmodel.Thefairvalueofunvestednon-employeeawardsisremeasuredateachreportingperiodandexpensedoverthevestingtermoftheunderlyingstockoptions.

PatentCosts

TheCompanyincurredandrecordedasoperatingexpenselegalandotherfeesrelatedtopatentsofapproximately$2.2million,approximately$1.3million,andapproximately$3.2millionfortheyearsendedDecember31,2015,2014and2013,respectively.Thesecostswerechargedtoselling,generalandadministrativeexpensesasincurred.

NetIncome(Loss)PerShare

TheCompanycalculatesbasicnetincome(loss)percommonshareanddilutednetincome(loss)percommonsharebydividingthenetincome(loss)bytheweightedaveragenumberofcommonsharesoutstandingduringtheperiod.Dilutednetincome(loss)percommonshareiscomputedbydividingnetincome(loss)bythedilutednumberofsharesoutstandingduringtheperiod.Exceptwheretheresultwouldbeantidilutivetonetincome(loss),dilutednetincome(loss)percommonshareiscomputedassumingtheconversionofthe2022Notes,theexerciseofoutstandingcommonstockoptionsandthevestingofRSUsandrestrictedstock(usingthetreasurystockmethod),aswellastheirrelatedincometaxeffects.TheCompanyallocatesundistributedearningsbetweentheclassesofcommonstockonaone-to-onebasiswhencomputingnetincome(loss)pershare.Asaresult,basicanddilutednetincome(loss)perClassAandClassBsharesareequivalent.

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

PropertyandEquipment

Propertyandequipment,includingleaseholdimprovements,arerecordedatcost,andaredepreciatedwhenplacedintoserviceusingthestraight-linemethodbasedontheirestimatedusefullivesasfollows:

Includedinpropertyandequipmentarecertaincostsofsoftwareobtainedforinternaluse.Costsincurredduringthepreliminaryprojectstageareexpensedasincurred,whilecostsincurredduringtheapplicationdevelopmentstagearecapitalizedandamortizedovertheestimatedusefullifeofthesoftware.TheCompanyalsocapitalizescostsrelatedtospecificupgradesandenhancementswhenitisprobabletheexpenditureswillresultinadditionalfunctionality.Maintenanceandtrainingcostsrelatedtosoftwareobtainedforinternaluseareexpensedasincurred.

Leaseholdimprovementsareamortizedovertheshorteroftheestimatedusefullifeoftheassetortheleaseterm.Capitalleaseassetsareamortizedovertheleaseterm.However,ifownershipwastransferredbytheendofthecapitallease,ortherewasabargainpurchaseoption,suchcapitalleaseassetswouldbeamortizedovertheusefullifethatwouldbeassignedifsuchassetswereowned.

Costsforcapitalassetsnotyetplacedintoservicehavebeencapitalizedasconstructioninprogress,andwillbedepreciatedinaccordancewiththeaboveguidelinesonceplacedintoservice.Maintenanceandrepaircostsareexpensedasincurred.

IncomeTaxes

TheCompanyprovidesforincometaxesundertheliabilitymethod.Deferredtaxassetsandliabilitiesaredeterminedbasedondifferencesbetweenfinancialreportingandtaxbasesofassetsandliabilitiesandaremeasuredusingtheenactedtaxratesineffectwhenthedifferencesareexpectedtoreverse.Deferredtaxassetsarereducedbyavaluationallowancetoreflecttheuncertaintyassociatedwiththeirultimaterealization.

InNovember2015,theFASBissuedASUNo.2015-17,BalanceSheetClassificationofDeferredTaxes("ASU2015-17")whichprovidesguidanceforbalancesheetclassificationofdeferredtaxes.Thisstandardrequiresthatdeferredtaxassetsandliabilitiesbeclassifiedasnon-currentonthebalancesheet,andeliminatesthepriorguidancewhichrequiredanentitytoseparatedeferredtaxliabilitiesandassetsintoacurrentamountandanoncurrentamountonthebalancesheet.ASU2015-17iseffectiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2016.Earlieradoptionispermittedasofthebeginningofaninterimorannualperiod.TheamendmentsinASU2015-17maybeappliedeitherprospectivelytoalldeferredtaxliabilitiesandassetsorretrospectivelytoallperiodspresented.TheCompanyelectedearlyadoptionintheyearendedDecember31,2015,andelectedtoapplytheamendmentsonaretrospectivebasis.TheCompany's

F-23

AssetDescription EstimatedUsefulLife

(InYears) Manufacturingequipment 10Laboratoryequipment 5Computerandofficeequipment 3Furnitureandfixtures 7Software 3

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

adoptionofthisstandarddidnothaveasignificantimpactonitsconsolidatedbalancesheetfortheyearsendedDecember31,2015or2014,orontheresultsofoperationsorcashflowsfortheyearsendedDecember31,2015,2014or2013.

TheCompanyaccountsforuncertaintaxpositionsrecognizedintheconsolidatedfinancialstatementsinaccordancewiththeprovisionsofASCTopic740,IncomeTaxes,byprescribingamore-likely-than-notthresholdforfinancialstatementrecognitionandmeasurementofataxpositiontakenorexpectedtobetakeninataxreturn.Whenuncertaintaxpositionsexist,theCompanyrecognizesthetaxbenefitoftaxpositionstotheextentthatthebenefitwillmorelikelythannotberealized.Thedeterminationastowhetherthetaxbenefitwillmorelikelythannotberealizedisbaseduponthetechnicalmeritsofthetaxpositionaswellasconsiderationoftheavailablefactsandcircumstances.TheCompanyevaluatesuncertaintaxpositionsonaquarterlybasisandadjuststheleveloftheliabilitytoreflectanysubsequentchangesintherelevantfactssurroundingtheuncertainpositions.Anychangestotheseestimates,basedontheactualresultsobtainedand/orachangeinassumptions,couldimpacttheCompany'sincometaxprovisioninfutureperiods.Interestandpenaltycharges,ifany,relatedtounrecognizedtaxbenefitswouldbeclassifiedasaprovisionforincometaxintheCompany'sconsolidatedstatementofoperations.

ImpairmentofLong-LivedAssets

TheCompanyregularlyreviewsthecarryingamountofitslong-livedassetstodeterminewhetherindicatorsofimpairmentmayexist,whichwarrantadjustmentstocarryingvaluesorestimatedusefullives.Ifindicationsofimpairmentexist,projectedfutureundiscountedcashflowsassociatedwiththeassetarecomparedtothecarryingamounttodeterminewhethertheasset'svalueisrecoverable.Ifthecarryingvalueoftheassetexceedssuchprojectedundiscountedcashflows,theassetwillbewrittendowntoitsestimatedfairvalue.Therewerenosignificantimpairmentsoflong-livedassetsfortheyearsendedDecember31,2015,2014,or2013.

ComprehensiveIncome(Loss)

Comprehensiveincome(loss)isdefinedasthechangeinequityofabusinessenterpriseduringaperiodfromtransactions,andothereventsandcircumstancesfromnon-ownersourcesandcurrentlyconsistsofnetlossandchangesinunrealizedgainsandlossesonavailable-for-salesecurities.

SegmentInformation

OperatingsegmentsarecomponentsofanenterpriseforwhichseparatefinancialinformationisavailableandisevaluatedregularlybytheCompany'schiefoperatingdecision-makerindecidinghowtoallocateresourcesandinassessingperformance.TheCompanycurrentlyoperatesinonereportablebusinesssegment—humantherapeutics.

ReclassificationsandRevisionstoPriorPeriodFinancialStatements

Certainfinancialstatementitemshavebeenreclassifiedtoconformtothecurrentperiodpresentation.

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

SubsequentEvents

TheCompanyconsiderseventsortransactionsthathaveoccurredafterthebalancesheetdateofDecember31,2015,butpriortothefilingofthefinancialstatementswiththeSecuritiesandExchangeCommissiontoprovideadditionalevidencerelativetocertainestimatesortoidentifymattersthatrequireadditionalrecognitionordisclosure.SubsequenteventshavebeenevaluatedthroughthefilingofthefinancialstatementsaccompanyingthisAnnualReportonForm10-K.

NewAccountingPronouncements

Fromtimetotime,newaccountingpronouncementsareissuedbytheFASBorotherstandardsettingbodiesthatareadoptedbytheCompanyasofthespecifiedeffectivedate.Exceptassetforthbelow,theCompanydidnotadoptanynewaccountingpronouncementsduringtheyearendedDecember31,2015thathadamaterialeffectonitsconsolidatedfinancialstatements.

InMay2014,theFASBissuedASUNo.2014-09,RevenuefromContractswithCustomers("ASU2014-09"),whichsupersedestherevenuerecognitionrequirementsinASCTopic605,RevenueRecognition,andmostindustry-specificguidance.Thenewstandardrequiresthatanentityrecognizerevenuetodepictthetransferofpromisedgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichthecompanyexpectstobeentitledinexchangeforthosegoodsorservices.Theupdatealsorequiresadditionaldisclosureaboutthenature,amount,timinganduncertaintyofrevenueandcashflowsarisingfromcustomercontracts,includingsignificantjudgmentsandchangesinjudgmentsandassetsrecognizedfromcostsincurredtoobtainorfulfillacontract.ASU2014-09iseffectiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2017andshouldbeappliedretrospectivelytoeachpriorreportingperiodpresentedorretrospectivelywiththecumulativeeffectofinitiallyapplyingthisupdaterecognizedatthedateofinitialapplication.EarlyadoptionispermittedbeginningafterDecember15,2016,includinginterimreportingperiodswithinthoseyears.TheCompanyiscurrentlyevaluatingthepotentialimpactthatASU2014-09mayhaveonitsfinancialpositionandresultsofoperations.

InAugust2014,theFASBissuedASUNo.2014-15,PresentationofFinancialStatements—GoingConcern:DisclosureofUncertaintiesaboutanEntity'sAbilitytoContinueasaGoingConcern("ASU2014-15").ASU2014-15isintendedtodefinemanagement'sresponsibilitytoevaluatewhetherthereissubstantialdoubtaboutanorganization'sabilitytocontinueasagoingconcernandtoproviderelatedfootnotedisclosures,ifrequired.ASU2014-15iseffectiveforannualreportingperiodsendingafterDecember15,2016,andappliestoannualandinterimperiodsthereafter.TheCompanyisevaluatingtheimpactthattheadoptionofASU2014-15willhaveontheCompany'sconsolidatedfinancialstatementsandrelateddisclosures,butdoesnotexpectittohaveasignificantimpactontheCompany'sresultsofoperations,cashflowsorfinancialposition.

InApril2015,theFASBissuedASUNo.2015-05,Customer'sAccountingforFeesPaidinaCloudComputingArrangement,whichamendsASCTopic350,Intangibles—GoodwillandOther—InternalUseSoftware.Underthisstandard,ifacloudcomputingarrangementincludesasoftwarelicense,thesoftwarelicenseelementofthearrangementshouldbeaccountedforconsistentwiththeacquisitionofothersoftwarelicenses.Ifacloudcomputingarrangementdoesnotincludeasoftwarelicense,thearrangementshouldbeaccountedforasaservicecontract.Theamendmentsareeffectiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2015andmaybeappliedoneitheraprospectiveorretrospectivebasis.Earlyadoptionisnotpermitted.TheCompanydoesnot

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NotestoConsolidatedFinancialStatements(Continued)

2.SummaryofSignificantAccountingPolicies(Continued)

expectadoptionofthisstandardtohaveasignificantimpactontheCompany'sfinancialpositionorresultsofoperations.

InJuly2015,theFASBissuedASUNo.2015-11,Inventory(Topic330):SimplifyingtheMeasurementofInventory("ASU2015-11").ASU2015-11requiresthatforentitiesthatmeasureinventoryusingthefirst-in,first-outmethod,inventoryshouldbemeasuredatthelowerofcostandnetrealizablevalue.Thestandarddefinesnetrealizablevalueastheestimatedsellingpricesintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposalandtransportation.Thestandardiseffectiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2016.Earlyadoptionispermitted.TheadoptionofthisstandardisnotexpectedtohaveasignificantimpactontheCompany'sfinancialpositionorresultsofoperations.

NootheraccountingstandardsknownbytheCompanytobeapplicabletoitthathavebeenissuedorproposedbytheFASBorotherstandard-settingbodiesandthatdonotrequireadoptionuntilafuturedateareexpectedtohaveamaterialimpactontheCompany'sconsolidatedfinancialstatementsuponadoption.

3.NetLossPerShare

Thefollowingtablesetsforththecomputationofbasicanddilutednetlosspershare(inthousands,exceptpershareamounts):

InJune2015,inconnectionwiththeissuanceofapproximately$335.7millioninaggregateprincipalamountofthe2022Notes,theCompanyenteredintotheConvertibleNoteHedges.TheConvertibleNoteHedgesaregenerallyexpectedtoreducethepotentialdilutiontotheCompany'sClassAcommonstockholdersuponaconversionofthe2022Notesand/oroffsetanycashpaymentstheCompanyisrequiredtomakeinexcessoftheprincipalamountofconverted2022NotesintheeventthatthemarketpricepershareoftheCompany'sClassAcommonstock,asmeasuredunderthetermsoftheConvertibleNoteHedges,isgreaterthantheconversionpriceofthe2022Notes(Note10).TheConvertibleNoteHedgesarenotconsideredforpurposesofcalculatingthenumberofdilutedweightedaveragesharesoutstanding,astheireffectwouldbeantidilutive.

ConcurrentlywithenteringintotheConvertibleNoteHedges,theCompanyalsoissuedNoteHedgeWarrantstotheConvertibleNoteHedgecounterpartiestoacquire20,249,665sharesoftheCompany'sClassAcommonstock,subjecttocustomaryanti-dilutionadjustments.TheNoteHedgeWarrantscouldhaveadilutiveeffectontheCompany'sClassAcommonstocktotheextentthatthemarketpricepershareoftheClassAcommonstockexceedstheapplicablestrikepriceofsuch

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YearEndedDecember31, 2015 2014 2013 Numerator: NetLoss $ (142,669) $ (189,618) $ (272,812)

Denominator: Weightedaveragenumberofcommonsharesusedinnetlosspershare—basicanddiluted 142,155 136,811 115,852

Netlosspershare—basicanddiluted $ (1.00) $ (1.39) $ (2.35)

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3.NetLossPerShare(Continued)

warrants(Note10).TheNoteHedgeWarrantsarenotconsideredforpurposesofcalculatingthenumberofdilutedweightedaveragessharesoutstanding,astheireffectwouldbeantidilutive.

Thefollowingpotentiallydilutivesecuritieshavebeenexcludedfromthecomputationofdilutedweightedaveragesharesoutstandingastheywouldbeanti-dilutive(inthousands):

AninsignificantnumberofsharesissuableundertheCompany'semployeestockpurchaseplanwereexcludedfromthecalculationofdilutedweightedaveragesharesoutstandingbecausetheireffectswouldbeanti-dilutive.

4.Collaboration,LicenseandCo-promotionAgreements

FortheyearendedDecember31,2015,theCompanyhadlinaclotidecollaborationagreementswithAllerganforNorthAmericaandAstraZenecaforChina,HongKongandMacau,aswellaslinaclotidelicenseagreementswithAllerganfortheEuropeanterritory(formerlywithAlmirall)andAstellasforJapan.TheCompanyalsohadaco-promotionagreementwithExactSciencestoco-promoteCologuardintheU.S.andaco-promotionagreementwithAllergantoco-promoteVIBERZIintheU.S.ThefollowingtableprovidesamountsincludedintheCompany'sconsolidatedstatementsofoperationsascollaborativearrangementsrevenueattributabletotransactionsfromthesearrangements(inthousands):

F-27

YearEndedDecember31, 2015 2014 2013 Optionstopurchasecommonstock 20,567 19,958 20,928Sharessubjecttorepurchase 74 99 —Unvestedrestrictedstockunits 900 — —Notehedgewarrants 20,250 — —2022Notes 20,250 — —

62,041 20,057 20,928

CollaborativeArrangements

RevenueYearEndedDecember31, 2015 2014 2013 LinaclotideAgreements: Allergan(NorthAmerica) $ 134,335 $ 47,682 $ 2,957AstraZeneca(China,HongKongandMacau) 2,370 3,417 1,044Almirall(Europe)(1) 540 7,587 13,103Astellas(Japan) 7,696 17,750 5,777

Co-promotionAgreements: ExactSciences(Cologuard) 4,437 — —Allergan(VIBERZI) 177 — —

Totalcollaborativearrangementsrevenue $ 149,555 $ 76,436 $ 22,881

(1) InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan.

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LinaclotideAgreements

Collaboration Agreement for North America with Allergan

InSeptember2007,theCompanyenteredintoacollaborationagreementwithAllergantodevelopandcommercializelinaclotideforthetreatmentofIBS-C,CICandotherGIconditionsinNorthAmerica.Underthetermsofthiscollaborationagreement,theCompanysharesequallywithAllerganalldevelopmentcostsaswellasnetprofitsorlossesfromthedevelopmentandsaleoflinaclotideintheU.S.TheCompanyreceivesroyaltiesinthemid-teenspercentbasedonnetsalesinCanadaandMexico.Allerganissolelyresponsibleforthefurtherdevelopment,regulatoryapprovalandcommercializationoflinaclotideinthosecountriesandfundinganycosts.InSeptember2012,AllergansublicenseditscommercializationrightsinMexicotoAlmirall.InOctober2015,AlmirallandAllerganterminatedthesublicensearrangementwithrespecttoMexico,returningtheexclusiverightstocommercializeCONSTELLAinMexicotoAllergan.CONSTELLAcontinuestobeavailabletoadultIBS-CpatientsinMexico.Allerganmadenon-refundable,up-frontpaymentstotaling$70.0milliontotheCompanyinordertoobtainrightstolinaclotideinNorthAmerica.BecausethelicensetojointlydevelopandcommercializelinaclotidedidnothaveastandalonevaluewithoutresearchanddevelopmentactivitiesprovidedbytheCompany,theCompanyrecordedtheup-frontlicensefeeascollaborativearrangementsrevenueonastraightlinebasisthroughSeptember30,2012,theperiodoverwhichlinaclotidewasjointlydevelopedunderthecollaboration.TheCompanyachievedallsixdevelopmentmilestonesunderthisagreementtotaling$135.0million,whichwererecognizedthroughSeptember2012.TheremainingmilestonepaymentthatcouldbereceivedfromAllerganupontheachievementofsalestargetswillberecognizedascollaborativearrangementsrevenueasearned.ThecollaborationagreementforNorthAmericaalsoincludescontingentmilestonepayments,aswellasacontingentequityinvestment,basedontheachievementofspecificdevelopmentandcommercialmilestones.AtDecember31,2015,$205.0millioninlicensefeesanddevelopmentmilestonepaymentshadbeenreceivedbytheCompany,aswellasa$25.0millionequityinvestmentintheCompany'scapitalstock.TheCompanycanalsoachieveupto$100.0millioninasalesrelatedmilestoneifcertainconditionsaremet.

ThecollaborationagreementforNorthAmericaincludedacontingentequityinvestment,intheformofaforwardpurchasecontract,whichrequiredAllergantopurchasesharesoftheCompany'sconvertiblepreferredstockuponachievementofaspecificdevelopmentmilestone.Attheinceptionofthearrangement,theCompanyvaluedthecontingentequityinvestmentandrecordedanapproximately$9.0millionassetandincrementaldeferredrevenue.The$9.0millionofincrementaldeferredrevenuewasrecognizedascollaborativearrangementsrevenueonastraight-linebasisovertheperiodoftheCompany'scontinuinginvolvementthroughSeptember30,2012.InJuly2009,theCompanyachievedthedevelopmentmilestonetriggeringtheequityinvestmentandreclassifiedtheforwardpurchasecontractasareductiontoconvertiblepreferredstock.OnSeptember1,2009,theCompanyissued2,083,333sharesofconvertiblepreferredstocktoAllergan(Note16).

Asaresultoftheresearchanddevelopmentcost-sharingprovisionsofthecollaborationforNorthAmerica,theCompanyoffsetapproximately$16.9millionand$4.3millionagainstresearchanddevelopmentcostsduringtheyearsendedDecember31,2015and2014,respectively.TheCompanyrecognizedapproximately$2.2millioninincrementalresearchanddevelopmentcostsduringtheyearendedDecember31,2013,toreflectitsobligationunderthecollaborationtobearhalfofthedevelopmentcostsincurredbybothparties.Inaddition,inMarch2015,theCompanyandAllergan

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agreedtosharecertaincostsrelatingtothemanufacturingoflinaclotideAPIandcertainothermanufacturingactivities.ThisarrangementresultedinnetamountsreceivedfromAllerganofapproximately$4.3millionforcostsincurredinpriorperiods,whichwererecordedbytheCompanyasareductioninresearchanddevelopmentexpensesduringtheyearendedDecember31,2015.

TheCompanyreceives50%ofthenetprofitsandbears50%ofthenetlossesfromthecommercialsaleofLINZESSintheU.S.;provided,however,thatifeitherpartyprovidesfewercallsonphysiciansinaparticularyearthanitiscontractuallyrequiredtoprovide,suchparty'sshareofthenetprofitswillbeadjustedasstipulatedbythecollaborationagreementforNorthAmerica.Certainoftheseadjustmentstotheshareofthenetprofitsmaybereducedoreliminatedinconnectionwiththeco-promotionactivitiesundertheCompany'sagreementwithAllergantoco-promoteVIBERZIintheU.S.,asdescribedbelow.Netprofitsornetlossesconsistofnetsalestothird-partycustomersandsublicenseincomeintheU.S.lessthecostofgoodssoldaswellasselling,generalandadministrativeexpenses.NetsalesarecalculatedandrecordedbyAllerganandmayincludegrosssalesnetofdiscounts,rebates,allowances,salestaxes,freightandinsurancecharges,andotherapplicabledeductions.TheCompanyrecordsitsshareofthenetprofitsornetlossesfromthesaleofLINZESSonanetbasisandpresentsthesettlementpaymentstoandfromAllerganascollaborationexpenseorcollaborativearrangementsrevenue,asapplicable.TheCompanyandAllerganbegancommercializingLINZESSintheU.S.inDecember2012.

TheCompanyrecognizedcollaborativearrangementsrevenuefromtheAllergancollaborationagreementforNorthAmericaduringtheyearsendedDecember31,2015,2014and2013asfollows(inthousands):

ThecollaborativearrangementsrevenuerecognizedintheyearsendedDecember31,2015,2014and2013primarilyrepresentstheCompany'sshareofthenetprofitsandnetlossesonthesaleofLINZESSintheU.S.

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YearEndedDecember31, 2015 2014 2013 CollaborativearrangementsrevenuerelatedtosalesofLINZESSintheU.S.(1)(2) $ 133,425 $ 47,618 $ 2,914

Royaltyrevenue 910 64 —SaleofAPI — — 43Totalcollaborativearrangementsrevenue $ 134,335 $ 47,682 $ 2,957

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ThefollowingtablepresentstheamountsrecordedbytheCompanyforcommercialeffortsrelatedtoLINZESSintheU.S.intheyearsendedDecember31,2015,2014and2013(inthousands):

InMay2014,AllerganbegancommercializingCONSTELLAinCanadaandinJune2014,AlmirallbegancommercializingLINZESSinMexico.InOctober2015,AlmirallandAllerganterminatedthesublicensearrangementwithrespecttoMexico,returningtheexclusiverightstocommercializeCONSTELLAinMexicotoAllergan.CONSTELLAcontinuestobeavailabletoadultIBS-CpatientsinMexico.TheCompanyrecordsroyaltiesonsalesofCONSTELLAinCanadaandLINZESSinMexicoonequarterinarrearsasitdoesnothaveaccesstotheroyaltyreportsfromitspartnersortheabilitytoestimatetheroyaltyrevenueintheperiodearned.TheCompanyrecognizedapproximately$0.9millionandaninsignificantamountofroyaltyrevenuesfromCanadaandMexicoduringtheyearsendedDecember31,2015and2014,respectively.

License Agreement for the European Territory with Allergan (formerly with Almirall through October 2015)

InApril2009,theCompanyenteredintoalicenseagreementwithAlmirall(the"EuropeanLicenseAgreement")todevelopandcommercializelinaclotideinEurope(includingtheCommonwealthofIndependentStatesandTurkey)forthetreatmentofIBS-C,CICandotherGIconditions.UnderthetermsoftheEuropeanLicenseAgreement,AlmirallwasresponsiblefortheexpensesassociatedwiththedevelopmentandcommercializationoflinaclotideintheEuropeanterritoryandtheCompanywasrequiredtoparticipateonajointdevelopmentcommitteeoverlinaclotide'sdevelopmentperiodandajointcommercializationcommitteewhiletheproductwasbeingcommercialized.

F-30

YearEndedDecember31, 2015 2014 2013

CollaborativearrangementsrevenuerelatedtosalesofLINZESSintheU.S.(1)(2) $ 133,425 $ 47,618 $ 2,914Collaborationexpense — — (42,074)Selling,generalandadministrativecostsincurredbytheCompany(1) (32,028) (31,646) (33,839)TheCompany'sshareofnetprofit(loss) $ 101,397 $ 15,972 $ (72,999)

(1) Includesonlycollaborativearrangementrevenueorselling,generalandadministrativecostsattributabletothecost-sharingarrangementwithAllergan.

(2) IncludesnetprofitshareadjustmentpayabletoAllerganofapproximately$2.4millionrecordedduringtheyearendedDecember31,2015.CertainoftheunfavorableadjustmentstotheCompany'sshareoftheLINZESSnetprofitsmaybereducedoreliminatedinconnectionwiththeco-promotionactivitiesundertheCompany'sagreementwithAllergantoco-promoteVIBERZIintheU.S.,asdescribedbelow.DuringtheyearendedDecember31,2015,inconnectionwiththeseco-promotionactivities,thenetprofitshareadjustmentspayabletoAllerganunderthelinaclotidecollaborationagreementforNorthAmericawerereducedbyapproximately$2.9millionandwerereflectedascollaborativearrangementsrevenueunderthisagreement.NetprofitshareadjustmentsreceivedfromAllerganofapproximately$1.7millionwererecordedduringtheyearendedDecember31,2014.

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4.Collaboration,LicenseandCo-promotionAgreements(Continued)

InMay2009,theCompanyreceivedanapproximately$38.0millionpaymentfromAlmirallrepresentinga$40.0millionnon-refundableup-frontpaymentnetofforeignwithholdingtaxes.TheCompanyelectedtorecordthenon-refundableup-frontpaymentnetoftaxeswithheld.Thelicenseagreementalsoincludeda$15.0millioncontingentequityinvestment,intheformofaforwardpurchasecontract,whichrequiredAlmiralltopurchasesharesoftheCompany'sconvertiblepreferredstockuponachievementofaspecificdevelopmentmilestone.Attheinceptionofthearrangement,theCompanyvaluedthecontingentequityinvestmentatapproximately$6.0million.TheCompanyrecognizedtheup-frontlicensefeeandthevalueofthecontingentequityinvestmenttotalingapproximately$6.0millionascollaborativearrangementsrevenueonastraight-linebasisthroughSeptember30,2012,theperiodoverwhichlinaclotidewasdevelopedundertheEuropeanLicenseAgreement.InNovember2009,theCompanyachievedthedevelopmentmilestonetriggeringtheequityinvestmentandonNovember13,2009,theCompanyreceived$15.0millionfromAlmirallforthepurchaseof681,819sharesofconvertiblepreferredstock(Note16).

TheoriginalEuropeanLicenseAgreementalsoincludedcontingentmilestonepaymentsthatcouldtotalupto$40.0millionuponachievementofspecificdevelopmentandcommerciallaunchmilestones.InNovember2010,theCompanyachievedadevelopmentmilestone,whichresultedinanapproximately$19.0millionpayment,representinga$20.0millionmilestone,netofforeignwithholdingtaxes.ThisdevelopmentmilestonewasrecognizedascollaborativearrangementsrevenuethroughSeptember2012.CommercialmilestonepaymentsundertheoriginalEuropeanLicenseAgreementconsistedof$4.0milliondueuponthefirstcommerciallaunchineachofthefivemajorEuropeanUnion("E.U.")countriessetforthintheagreement.

InJune2013andFebruary2014,theCompanyandAlmirallamendedtheoriginalEuropeanLicenseAgreement.Pursuanttothetermsoftheamendments,(i)thecommerciallaunchmilestoneswerereducedto$17.0million;(ii)newsales-basedmilestonepaymentswereaddedtotheagreement;and(iii)theescalatingroyaltiesbasedonsalesoflinaclotideweremodifiedsuchthattheybeganinthelow-twentiespercentandescalatedtothemid-fortiespercentthroughApril2017,andthereafterbeganinthemid-twentiespercentandescalatedtothemid-fortiespercentatlowersalesthresholds.Ineachcase,theseroyaltypaymentswerereducedbythetransferpricepaidfortheAPIincludedintheproductactuallysoldintheAlmirallterritoryandothercontractualdeductions.TheCompanyconcludedthattheseamendmentswereamodificationtotheEuropeanLicenseAgreementunderASUNo.2009-13,butthemodificationdidnothaveamaterialimpactontheCompany'sconsolidatedfinancialstatements.

Duringthesecondquarterof2013,theCompanyachievedtwomilestonesundertheamendedEuropeanLicenseAgreement,whichresultedinpaymentsofapproximately$1.9millionfromAlmiralltotheCompanyrelatedtothecommerciallaunchesintwoofthefivemajorE.U.countries,theUnitedKingdomandGermany.Theapproximately$1.9millionpaymentrepresentedthetwo$1.0millionmilestones,netofforeigntaxwithholdings.Duringthefirstandsecondquartersof2014,theCompanyachievedtwoadditionalmilestonesundertheamendedEuropeanLicenseAgreementtriggeringpaymentsofapproximately$1.0millioneachrelatedtothecommerciallaunchesintwoadditionalmajorE.U.countries,ItalyandSpain.Eachapproximately$1.0millionpaymentrepresentsthe$1.0millionmilestone,netofforeigntaxwithholdings.

InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan.Additionally,inOctober2015,theCompanyandAllerganseparatelyentered

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intoanamendmenttotheEuropeanLicenseAgreementrelatingtothedevelopmentandcommercializationoflinaclotideinEurope.Pursuanttothetermsoftheamendment,(i)theremainingsales-basedmilestonespayabletotheCompanyundertheEuropeanLicenseAgreementweremodifiedtoincreasethetotalmilestonepaymentssuchthat,whenaggregatedwiththeremainingcommerciallaunchmilestones,theycouldtotalupto$42.5million,(ii)theroyaltiespayabletotheCompanyduringthetermoftheEuropeanLicenseAgreementweremodifiedsuchthattheroyaltiesbasedonsalesvolumeinEuropebegininthemid-singledigitpercentandescalatetotheupper-teenspercentbycalendaryear2019,and(iii)AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEuropefromtheCompany,aswellastheassociatedcosts.Furthermore,withtheCompanynolongerresponsibleforthemanufacturingoflinaclotideAPIforEurope,theroyaltiesunderthelicenseagreementwillnolongerbereducedbythetransferpricepaidfortheAPIincludedintheproductactuallysoldbyAllerganinEuropeinanygivenperiod.

The2015amendmenttotheEuropeanLicenseAgreementdoesnotrepresentamaterialmodificationtothelinaclotidecollaborationagreementwithAllerganforNorthAmericaanddidnothaveamaterialimpactontheCompany'sconsolidatedfinancialstatements.Thecommerciallaunchandsales-basedmilestonesundertheEuropeanLicenseAgreementarerecognizedasrevenueasearned.TheCompanyalsorecordsroyaltiesonsalesofCONSTELLAonequarterinarrearsasitdoesnothaveaccesstotheroyaltyreportsfromAllerganortheabilitytoestimatetheroyaltyrevenueintheperiodearned.

ConcurrentlywiththeEuropeanlicensetransfer,AlmirallandAllerganterminatedthesublicensearrangementwithrespecttoMexico,returningtheexclusiverightstocommercializeCONSTELLAinMexicotoAllergan.CONSTELLAcontinuestobeavailabletoadultIBS-CpatientsinMexico.

TheCompanyrecognizedapproximately$0.5millionofcollaborativearrangementsrevenue,comprisedofroyaltyrevenue,fromtheEuropeanLicenseAgreementduringtheyearendedDecember31,2015.TheCompanyrecognizedapproximately$7.6millionintotalcollaborativearrangementsrevenuefromtheEuropeanLicenseAgreementduringtheyearendedDecember31,2014,includingapproximately$5.1millionfromthesaleofAPItoAlmirall,approximately$1.9millionincommerciallaunchmilestones,andapproximately$0.6millioninroyaltyrevenue.TheCompanyrecognizedapproximately$13.1millionintotalcollaborativearrangementsrevenuefromtheEuropeanLicenseAgreementduringtheyearendedDecember31,2013,includingapproximately$11.1millionfromthesaleofAPItoAlmirall,approximately$0.2millioninroyaltyrevenueandapproximately$1.9millionincommerciallaunchmilestones.

License Agreement for Japan with Astellas

InNovember2009,theCompanyenteredintoalicenseagreementwithAstellastodevelopandcommercializelinaclotideforthetreatmentofIBS-C,CICandotherGIconditionsinJapan,SouthKorea,Taiwan,Thailand,thePhilippinesandIndonesia.AsaresultofanamendmentexecutedinMarch2013,theCompanyregainedrightstolinaclotideinSouthKorea,Taiwan,Thailand,thePhilippinesandIndonesia.TheCompanyconcludedthattheamendmentwasnotamaterialmodificationofthelicenseagreement.Astellascontinuestoberesponsibleforallactivitiesrelatingtodevelopment,regulatoryapprovalandcommercializationinJapanaswellasfundinganycostsandtheCompanyisrequiredtoparticipateonajointdevelopmentcommitteeoverlinaclotide'sdevelopmentperiod.

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In2009,AstellaspaidtheCompanyanon-refundable,up-frontlicensingfeeof$30.0million,whichisbeingrecognizedascollaborativearrangementsrevenueonastraight-linebasisovertheCompany'sestimateoftheperiodoverwhichlinaclotidewillbedevelopedunderthelicenseagreement.InMarch2013,theCompanyreviseditsestimateofthedevelopmentperiodfrom115monthsto85monthsbasedontheCompany'sassessmentofregulatoryapprovaltimelinesforJapan.DuringtheyearsendedDecember31,2015,2014and2013,theCompanyrecognizedapproximately$5.1million,$5.1millionand$4.6millionofrevenuerelatedtotheup-frontlicensingfee,respectively,includingapproximately$1.9million,$1.9millionand$1.5millionofrevenueineachperiodattributabletotheMarch2013revisiontotheestimateddevelopmentperiod.AtDecember31,2015,approximately$6.3millionoftheup-frontlicensefeeremaineddeferred.

Theagreementalsoincludesthreedevelopmentmilestonepaymentsthatcouldtotalupto$45.0million,noneofwhichtheCompanyconsiderssubstantive.Thefirstmilestonepayment,consistingof$15.0millionuponenrollmentofthefirststudysubjectinaPhaseIIIstudyforlinaclotideinJapan,wasachievedinNovember2014,andapproximately$12.3millionwasrecognizedasrevenuethroughDecember31,2015,includingapproximately$2.1millionandapproximately$10.2millionduringtheyearsendedDecember31,2015and2014,respectively.Theremainingapproximately$2.6millionofthismilestonepaymentwillberecognizedovertheremainingdevelopmentperiod.Thetwoadditionalmilestonepaymentsconsistof$15.0millionuponfilingoftheJapaneseequivalentofanNDAwiththerelevantregulatoryauthorityinJapanand$15.0millionuponapprovalofsuchequivalentbytherelevantregulatoryauthority.Inaddition,theCompanywillreceiveroyaltieswhichescalatebasedonsalesvolume,beginninginthelow-twentiespercent,lessthetransferpricepaidfortheAPIincludedintheproductactuallysoldandothercontractualdeductions.

DuringtheyearsendedDecember31,2015,2014and2013,theCompanyrecognizedapproximately$7.7million,approximately$17.7million,andapproximately$5.8million,respectively,incollaborativearrangementsrevenuefromtheAstellaslicenseagreement,includingapproximately$0.5million,approximately$2.4million,andapproximately$1.2million,respectively,fromthesaleofAPItoAstellas.

Collaboration Agreement for China, Hong Kong and Macau with AstraZeneca

InOctober2012,theCompanyenteredintoacollaborationagreementwithAstraZeneca(the"AstraZenecaCollaborationAgreement")toco-developandco-commercializelinaclotideinChina,HongKongandMacau(the"LicenseTerritory").ThecollaborationprovidesAstraZenecawithanexclusivenontransferablelicensetoexploittheunderlyingtechnologyintheLicenseTerritory.Thepartiesshareresponsibilityforcontinueddevelopmentandcommercializationoflinaclotideunderajointdevelopmentplanandajointcommercializationplan,respectively,withAstraZenecahavingprimaryresponsibilityforthelocaloperationalexecution.

ThepartiesagreedtoanInitialDevelopmentPlan("IDP")whichincludestheplanneddevelopmentoflinaclotideinChina,includingtheleadresponsibilityforeachactivityandtherelatedinternalandexternalcosts.TheIDPindicatesthatAstraZenecaisresponsibleforamultinationalPhaseIIIclinicaltrial(the"PhaseIIITrial"),theCompanyisresponsiblefornonclinicaldevelopmentandsupplyingclinicaltrialmaterialandbothpartiesareresponsiblefortheregulatorysubmissionprocess.TheIDPindicatesthatthepartyspecificallydesignatedasbeingresponsibleforaparticulardevelopmentactivityundertheIDPshallimplementandconductsuchactivities.Theactivitiesare

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governedbyaJointDevelopmentCommittee("JDC"),withequalrepresentationfromeachparty.TheJDCisresponsibleforapproving,byunanimousconsent,thejointdevelopmentplananddevelopmentbudget,aswellasapprovingprotocolsforclinicalstudies,reviewingandcommentingonregulatorysubmissions,andprovidinganexchangeofdataandinformation.

TheAstraZenecaCollaborationAgreementwillcontinueuntilthereisnolongeradevelopmentplanorcommercializationplaninplace,however,itcanbeterminatedbyAstraZenecaatanytimeupon180days'priorwrittennotice.Undercertaincircumstances,eitherpartymayterminatetheAstraZenecaCollaborationAgreementintheeventofbankruptcyoranuncuredmaterialbreachoftheotherparty.UponcertainchangeincontrolscenariosofAstraZeneca,theCompanymayelecttoterminatetheAstraZenecaCollaborationAgreementandmayre-acquireitsproductrightsinalumpsumpaymentequaltothefairmarketvalueofsuchproductrights.

InconnectionwiththeAstraZenecaCollaborationAgreement,theCompanyandAstraZenecaalsoexecutedaco-promotionagreement(the"Co-PromotionAgreement"),pursuanttowhichtheCompanyutilizeditsexistingsalesforcetoco-promoteNEXIUM®(esomeprazolemagnesium),oneofAstraZeneca'sproducts,intheU.S.TheCo-PromotionAgreementexpiredinMay2014.

TherearenorefundprovisionsintheAstraZenecaCollaborationAgreementandtheCo-PromotionAgreement(together,the"AstraZenecaAgreements").

UnderthetermsoftheAstraZenecaCollaborationAgreement,theCompanyreceiveda$25.0millionnon-refundableupfrontpaymentuponexecution.TheCompanyisalsoeligiblefor$125.0millioninadditionalcommercialmilestonepaymentscontingentontheachievementofcertainsalestargets.ThepartieswillalsoshareinthenetprofitsandlossesassociatedwiththedevelopmentandcommercializationoflinaclotideintheLicenseTerritory,withAstraZenecareceiving55%ofthenetprofitsorincurring55%ofthenetlossesuntilacertainspecifiedcommercialmilestoneisachieved,atwhichtimeprofitsandlosseswillbesharedequallythereafter.

ActivitiesundertheAstraZenecaAgreementswereevaluatedinaccordancewiththeASC605-25,RevenueRecognition—Multiple-ElementArrangements("ASC605-25"),todetermineiftheyrepresentedamultipleelementrevenuearrangement.TheCompanyidentifiedthefollowingdeliverablesintheAstraZenecaAgreements:

• anexclusivelicensetodevelopandcommercializelinaclotideintheLicenseTerritory(the"LicenseDeliverable"),

• research,developmentandregulatoryservicespursuanttotheIDP,asmodifiedfromtimetotime(the"R&DServices"),

• JDCservices,

• obligationtosupplyclinicaltrialmaterial,and

• co-promotionservicesforAstraZeneca'sproduct(the"Co-PromotionDeliverable").

TheLicenseDeliverableisnontransferableandhascertainsublicenserestrictions.TheCompanydeterminedthattheLicenseDeliverablehadstandalonevalueasaresultofAstraZeneca'sinternalproductdevelopmentandcommercializationcapabilities,whichwouldenableittousetheLicenseDeliverableforitsintendedpurposeswithouttheinvolvementoftheCompany.Theremainingdeliverablesweredeemedtohavestandalonevaluebasedontheirnatureandalldeliverablesmetthe

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criteriatobeaccountedforasseparateunitsofaccountingunderASC605-25.Factorsconsideredinthisdeterminationincluded,amongotherthings,whetheranyothervendorsselltheitemsseparatelyandifthecustomercouldusethedelivereditemforitsintendedpurposewithoutthereceiptoftheremainingdeliverables.

TheCompanyidentifiedthesupplyoflinaclotidedrugproductforcommercialrequirementsandcommercializationservicesascontingentdeliverablesbecausetheseservicesarecontingentuponthereceiptofregulatoryapprovaltocommercializelinaclotideintheLicenseTerritory,andtherewerenobindingcommitmentsorfirmpurchaseorderspendingforcommercialsupply.Asthesedeliverablesarecontingent,andarenotatanincrementaldiscount,theyarenotevaluatedasdeliverablesattheinceptionofthearrangement.Thesecontingentdeliverableswillbeevaluatedandaccountedforseparatelyaseachrelatedcontingencyisresolved.AsofDecember31,2015,nocontingentdeliverableswereprovidedbytheCompanyundertheAstraZenecaAgreements.

InAugust2014,theCompanyandAstraZeneca,throughtheJDC,modifiedtheIDPanddevelopmentbudgettoincludeapproximately$14.0millioninadditionalactivitiesovertheremainingdevelopmentperiod,tobesharedbytheCompanyandAstraZenecaunderthetermsoftheAstraZenecaCollaborationAgreement.TheseadditionalactivitiesservetosupportthecontinueddevelopmentoflinaclotideintheLicensedTerritory,includingthePhaseIIITrial.PursuanttothetermsofthemodifiedIDPanddevelopmentbudget,certainoftheCompany'sdeliverablesweremodified,specificallytheR&DServicesandtheobligationtosupplyclinicaltrialmaterial.Themodificationdidnot,however,haveamaterialimpactontheCompany'sconsolidatedfinancialstatements.

Thetotalamountofthenon-contingentconsiderationallocabletotheAstraZenecaAgreementsofapproximately$34.0million("ArrangementConsideration")includesthe$25.0millionnon-refundableupfrontpaymentand55%ofthecostsforclinicaltrialmaterialsupplyservicesandresearch,developmentandregulatoryactivitiesallocatedtotheCompanyintheIDPorasapprovedbytheJDCinsubsequentperiods,orapproximately$9.0million.

TheCompanyallocatedtheArrangementConsiderationofapproximately$34.0milliontothenon-contingentdeliverablesbasedonmanagement'sBESPofeachdeliverableusingtherelativesellingpricemethodastheCompanydidnothaveVSOEorTPEofsellingpriceforsuchdeliverables.TheCompanyestimatedtheBESPfortheLicenseDeliverableusingamulti-periodexcess-earningsmethodundertheincomeapproachwhichutilizedcashflowprojections,thekeyassumptionsofwhichincludedthefollowingmarketconditionsandentity-specificfactors:(a)thespecificrightsprovidedunderthelicensetodevelopandcommercializelinaclotide;(b)thepotentialindicationsforlinaclotidepursuanttothelicense;(c)thelikelihoodlinaclotidewillbedevelopedformorethanoneindication;(d)thestageofdevelopmentoflinaclotideforIBS-CandCICandtheprojectedtimelineforregulatoryapproval;(e)thedevelopmentriskbyindication;(f)themarketsizebyindication;(g)theexpectedproductlifeoflinaclotideassumingcommercialization;(h)thecompetitiveenvironment,and(i)theestimateddevelopmentandcommercializationcostsoflinaclotideintheLicenseTerritory.TheCompanyutilizedadiscountrateof11.5%initsanalysis,representingtheweightedaveragecostofcapitalderivedfromreturnsonequityforcomparablecompanies.TheCompanydetermineditsBESPfortheremainingdeliverablesbasedonthenatureoftheservicestobeperformedandestimatesoftheassociatedeffortandcostoftheservicesadjustedforareasonableprofitmarginsuchthattheyrepresentedestimatedmarketratesforsimilarservicessoldonastandalonebasis.TheCompany

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concludedthatachangeinkeyassumptionsusedtodetermineBESPforeachdeliverablewouldnothaveasignificanteffectontheallocationoftheArrangementConsideration,astheestimatedsellingpriceoftheLicenseDeliverablesignificantlyexceedstheotherdeliverables.

Oftheapproximately$34.0millionofArrangementConsideration,consistingofthe$25.0millionnon-refundableupfrontpaymentand55%ofthecostsforclinicaltrialmaterialsupplyservicesandresearch,developmentandregulatoryactivitiesallocatedtotheCompany,approximately$29.7millionwasallocatedtotheLicenseDeliverable,approximately$1.8milliontotheR&DServices,approximately$0.1milliontotheJDCservices,approximately$0.3milliontotheclinicaltrialmaterialsupplyservices,andapproximately$2.1milliontotheCo-PromotionDeliverableintherelativesellingpricemodel,atthetimeofthematerialmodification.

BecausetheCompanysharesdevelopmentcostswithAstraZeneca,paymentsfromAstraZenecawithrespecttobothresearchanddevelopmentandselling,generalandadministrativecostsincurredbytheCompanypriortothecommercializationoflinaclotideintheLicenseTerritoryarerecordedasareductioninexpense,inaccordancewiththeCompany'spolicy,whichisconsistentwiththenatureofthecostreimbursement.DevelopmentcostsincurredbytheCompanythatpertaintothejointdevelopmentplanandsubsequentamendmentstothejointdevelopmentplan,asapprovedbytheJDC,arerecordedasresearchanddevelopmentexpenseasincurred.PaymentstoAstraZenecaarerecordedasincrementalresearchanddevelopmentexpense.

TheCompanycompleteditsobligationsrelatedtotheLicenseDeliverableuponexecutionoftheAstraZenecaAgreements;however,therevenuerecognizedinthestatementofoperationswaslimitedtothenon-contingentportionoftheLicenseDeliverableconsiderationinaccordancewithASC605-25.DuringtheyearsendedDecember31,2015and2014,theCompanyrecognizedapproximately$2.2millionandapproximately$2.5million,respectively,incollaborativearrangementsrevenuerelatedtotheLicenseDeliverableinconnectionwiththemodificationtotheIDPanddevelopmentbudgetinAugust2014,asthisportionoftheArrangementConsiderationwasnolongercontingent.DuringtheyearendedDecember31,2013,theCompanydidnotrecognizeanyamountsincollaborativearrangementsrevenuerelatedtotheLicenseDeliverable.

TheCompanyalsoperformsR&DServicesandJDCservices,andsuppliesclinicaltrialmaterialsduringtheestimateddevelopmentperiod.AllArrangementConsiderationallocatedtosuchservicesisbeingrecognizedasareductionofresearchanddevelopmentcosts,usingtheproportionalperformancemethod,bywhichtheamountsarerecognizedinproportiontothecostsincurred.Asaresultofthecost-sharingarrangementsunderthecollaboration,theCompanyrecognizedapproximately$0.7million,$2.4millionand$1.9millioninincrementalresearchanddevelopmentcostsduringtheyearsendedDecember31,2015,2014and2013,respectively.TheamountallocatedtotheCo-PromotionDeliverablewasrecognizedascollaborativearrangementsrevenueusingtheproportionalperformancemethod,whichapproximatesrecognitiononastraight-linebasisbeginningonthedatethattheCompanybegantoco-promoteAstraZeneca'sproductthroughDecember31,2013(theearliestcancellationdate).AsofDecember31,2013,theCompanycompleteditsobligationrelatedtotheCo-PromotionDeliverable;however,therevenuerecognizedinthestatementofoperationswaslimitedtothenon-contingentconsiderationinaccordancewithASC605-25.DuringtheyearsendedDecember31,2015,2014and2013,theCompanyrecognizedapproximately$0.2million,approximately$0.9millionandapproximately$1.0million,respectively,ascollaborativearrangementsrevenuerelatedtothisdeliverable,assuchportionsoftheArrangementConsiderationwerenolongercontingent.

F-36

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

4.Collaboration,LicenseandCo-promotionAgreements(Continued)

TheCompanyreassessestheperiodsofperformanceforeachdeliverableattheendofeachreportingperiod.

MilestonepaymentsreceivedfromAstraZenecaupontheachievementofsalestargetswillberecognizedasearned.

Co-PromotionAgreements

Co-promotion Agreement with Exact Sciences Corp. for Cologuard

InMarch2015,theCompanyandExactSciencesenteredintoanagreementtoco-promoteExactSciences'Cologuard,thefirstandonlyFDA-approvednoninvasivestoolDNAscreeningtestforcolorectalcancer(the"ExactSciencesCo-promotionAgreement").UnderthetermsoftheExactSciencesCo-promotionAgreement,theCompany'ssalesteamispromotingandeducatinghealthcarepractitionersregardingCologuard,withLINZESSremainingtheCompany'sfirst-positionproduct.Thecompaniesarealsocollaboratingonmedicaleducationinitiativestosupportmorein-depthunderstandingofCologuardandtheimportanceofcolorectalcancerscreening.ExactSciencesmaintainsresponsibilityforallotheraspectsofthecommercializationofCologuardoutsideoftheco-promotion.UnderthetermsoftheExactSciencesCo-promotionAgreement,theCompanyiscompensatedviareimbursementsforsalesdetailing,promotionalsupportservicesandmedicaleducationinitiatives.Duringtheinitialone-yeartermoftheagreement,theCompanycouldreceiveuptoamaximumreimbursementofapproximately$4.8million.TheCompanyalsoearnsroyaltiesonthenetsalesofCologuardgeneratedfromthehealthcarepractitionersonwhomtheCompanycallslessthesalespromotionreimbursementtotheCompany,suchroyaltiesbeingpayableduringthetermandforoneyearfollowingtheterminationoftheCompany'sco-promotionefforts.TherearenorefundprovisionsintheExactSciencesCo-promotionAgreement.

Thenon-exclusiveExactSciencesCo-promotionAgreementcoversaninitialone-yearterm,andrenewsautomaticallyforsuccessiveonemonthperiodsunlessanduntilterminatedbyeitherparty.Eitherpartymayterminatetheagreementintheeventofanuncuredmaterialbreachbytheotherparty,withdrawalofCologuardfromtheU.S.market,restrictionontheindicationsforCologuardbytheFDA,impositionofrestrictivefederalorstatepricecontrols,changeofcontroloftheotherparty,orbankruptcyorinsolvencyoftheotherparty.

ActivitiesundertheExactSciencesCo-promotionAgreementwereevaluatedinaccordancewithASC605-25,todetermineiftheyrepresentedamultipleelementrevenuearrangement.TheCompanyidentifiedthefollowingdeliverablesintheExactSciencesCo-promotionAgreement:(i)secondpositionsalesdetailing,(ii)promotionalsupportservices,and(iii)medicaleducationservices.EachofthedeliverableswasdeemedtohavestandalonevaluebasedontheirnatureandalldeliverablesmetthecriteriatobeaccountedforasseparateunitsofaccountingunderASC605-25.TheCompanydeterminedthattheBESPforeachofthethreedeliverablesapproximatedthevalueallocatedtothedeliverablesundertheagreement.TherevenuerelatedtoeachdeliverableisrecognizedascollaborativearrangementsrevenueintheCompany'sconsolidatedstatementofoperations,inaccordancewithASC605-25,duringtheperiodearned.DuringtheyearendedDecember31,2015,theCompanyrecognizedapproximately$4.4millionascollaborativearrangementsrevenuerelatedtothisarrangement.

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TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

4.Collaboration,LicenseandCo-promotionAgreements(Continued)

Co-promotion Agreement with Allergan for VIBERZI

InAugust2015,theCompanyandAllerganenteredintoanagreementfortheco-promotionofVIBERZIintheU.S.,Allergan'streatmentforadultssufferingfromIBS-D(the"VIBERZICo-promotionAgreement").UnderthetermsoftheVIBERZICo-promotionAgreement,theCompany'sclinicalsalesspecialistsaredetailingVIBERZItotheapproximately25,000healthcarepractitionerstowhomtheydetailLINZESS.AllerganisresponsibleforallcostsandactivitiesrelatingtothecommercializationofVIBERZIoutsideoftheco-promotion.

UnderthetermsoftheVIBERZICo-promotionAgreement,theCompany'spromotionaleffortsarecompensatedbasedonthevolumeofcallsdeliveredbytheCompany'ssalesforce,withthetermsoftheagreementreducingoreliminatingcertainoftheunfavorableadjustmentstotheCompany'sshareofnetprofitsstipulatedbythelinaclotidecollaborationagreementwithAllerganforNorthAmerica,providedthattheCompanyprovidesaminimumnumberofVIBERZIcallsonphysicians.TheCompanyhasthepotentialtoachievemilestonepaymentsofupto$10.0millionbasedonthenetsalesofVIBERZIineachof2017and2018,andisalsocompensatedviareimbursementsformedicaleducationinitiatives.

TheCompany'spromotionaleffortsunderthenon-exclusiveco-promotionbeganwhenVIBERZIbecamecommerciallyavailableinDecember2015,andwillcontinueuntilDecember31,2017,unlessearlierterminatedbyeitherpartypursuanttotheprovisionsoftheVIBERZICo-promotionAgreement.EitherpartymayalsoterminatetheVIBERZICo-promotionAgreementintheeventofanuncuredmaterialbreachbytheotherparty,withdrawalofnecessaryapprovalsbytheFDA,forconvenience,orbankruptcyorinsolvencyoftheotherparty.AllerganmayterminatetheVIBERZICo-promotionAgreementiftheCompanydoesnotprovidetheminimumnumberofcallsonphysiciansforVIBERZI.

ActivitiesundertheVIBERZICo-promotionAgreementwereevaluatedinaccordancewithASC605-25todetermineiftheyrepresentedamultipleelementrevenuearrangement.TheCompanyconcludedthattheVIBERZICo-promotionAgreementdoesnotrepresentamaterialmodificationtothelinaclotidecollaborationagreementwithAllerganforNorthAmerica,asitisnotmaterialtothetotalarrangementconsiderationunderthecollaborationagreement,doesnotsignificantlymodifytheexistingdeliverables,anddoesnotsignificantlychangethetermoftheagreement.TheCompanyidentifiedthefollowingdeliverablesintheVIBERZICo-promotionAgreement:(i)secondpositionsalesdetailingofVIBERZI,and(ii)medicaleducationservices.EachofthedeliverableswasdeemedtohavestandalonevaluebasedontheirnatureandbothdeliverablesmetthecriteriatobeaccountedforasseparateunitsofaccountingunderASC605-25.TheCompanydeterminedtheBESPforeachofthedeliverablesapproximatedthevalueallocatedtothedeliverablesundertheagreement.Asconsiderationisearnedoverthetermoftheagreement,therevenuewillbeallocatedtoeachdeliverablebasedontherelativesellingprice,usingmanagement'sBESP,andrecognizedascollaborativearrangementsrevenueintheCompany'sconsolidatedstatementofoperations,inaccordancewithASC605-25,duringthequarterearned.DuringtheyearendedDecember31,2015,inconnectionwiththeCompany'sVIBERZIco-promotionactivities,thenetprofitshareadjustmentspayabletoAllerganunderthelinaclotidecollaborationagreementforNorthAmericawerereducedbyapproximately$2.9millionandwerereflectedascollaborativearrangementsrevenueunderthisagreement.DuringtheyearendedDecember31,2015,theCompanyalsorecognizedapproximately

F-38

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

4.Collaboration,LicenseandCo-promotionAgreements(Continued)

$0.2millioninrevenuerelatedtotheVIBERZICo-promotionAgreementfortheperformanceofmedicaleducationservices.

OtherCollaborationandLicenseAgreements

TheCompanyhasothercollaborationandlicenseagreementsthatarenotindividuallysignificanttoitsbusiness.Inconnectionwithenteringintotheseagreements,theCompanymadeaggregateup-frontpaymentsofapproximately$5.8million,whichwereexpensedasresearchanddevelopmentexpense.Pursuanttothetermsofoneagreement,theCompanymayberequiredtopay$7.5millionfordevelopmentmilestones,ofwhich,approximately$2.5millionhadbeenpaidasofDecember31,2015,and$18.0millionforregulatorymilestones,noneofwhichhadbeenpaidasofDecember31,2015.Inaddition,pursuanttothetermsofanotheragreement,thecontingentmilestonescouldtotalupto$114.5millionperproducttooneoftheCompany'scollaborationpartners,including$21.5millionfordevelopmentmilestones,$58.0millionforregulatorymilestonesand$35.0millionforsales-basedmilestones.Further,undersuchagreements,theCompanyisalsorequiredtofundcertainresearchactivitiesand,ifanyproductrelatedtothesecollaborationsisapprovedformarketing,topaysignificantroyaltiesonfuturesales.DuringtheyearendedDecember31,2015,theCompanyincurredaninsignificantamountinresearchanddevelopmentexpenseassociatedwiththeCompany'sothercollaborationandlicenseagreements.DuringtheyearsendedDecember31,2014and2013,theCompanyincurredapproximately$1.0million,andapproximately$3.6million,respectively,inresearchanddevelopmentexpenseassociatedwiththeCompany'sothercollaborationandlicenseagreements.

5.FairValueofFinancialInstruments

ThetablesbelowpresentinformationabouttheCompany'sassetsthataremeasuredatfairvalueonarecurringbasisasofDecember31,2015and2014andindicatethefairvaluehierarchyofthevaluationtechniquestheCompanyutilizedtodeterminesuchfairvalue.Ingeneral,fairvaluesdeterminedbyLevel1inputsutilizeobservableinputssuchasquotedpricesinactivemarketsforidenticalassetsorliabilities.FairvaluesdeterminedbyLevel2inputsutilizedatapointsthatareeitherdirectlyorindirectlyobservable,suchasquotedprices,interestratesandyieldcurves.FairvaluesdeterminedbyLevel3inputsutilizeunobservabledatapointsinwhichthereislittleornomarketdata,whichrequiretheCompanytodevelopitsownassumptionsfortheassetorliability.

TheCompany'sinvestmentportfolioincludesmainlyfixedincomesecuritiesthatdonotalwaystradeonadailybasis.Asaresult,thepricingservicesusedbytheCompanyapplyotheravailableinformationasapplicablethroughprocessessuchasbenchmarkyields,benchmarkingoflikesecurities,sectorgroupingsandmatrixpricingtopreparevaluations.Inaddition,modelprocessesareusedtoassessinterestrateimpactanddevelopprepaymentscenarios.Thesemodelstakeintoconsiderationrelevantcreditinformation,perceivedmarketmovements,sectornewsandeconomicevents.Theinputsintothesemodelsmayincludebenchmarkyields,reportedtrades,broker-dealerquotes,issuerspreadsandotherrelevantdata.TheCompanyvalidatesthepricesprovidedbyitsthirdpartypricingservicesbyobtainingmarketvaluesfromotherpricingsourcesandanalyzingpricingdataincertaininstances.

F-39

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

5.FairValueofFinancialInstruments(Continued)

ThefollowingtablespresenttheassetsandliabilitiestheCompanyhasmeasuredatfairvalueonarecurringbasis(inthousands):

TherewerenotransfersbetweenfairvaluemeasurementlevelsduringtheyearsendedDecember31,2015or2014.

Cashequivalents,accountsreceivable,relatedpartyaccountsreceivable,prepaidexpensesandothercurrentassets,accountspayable,relatedpartyaccountspayable,accruedexpensesandthecurrentportionofcapitalleaseobligationsatDecember31,2015and2014arecarriedatamountsthatapproximatefairvalueduetotheirshort-termmaturities.

Thenon-currentportionofthecapitalleaseobligationsatDecember31,2015and2014approximatesfairvalueasitbearsinterestatarateapproximatingamarketinterestrate.

F-40

FairValueMeasurementsatReportingDateUsing

December31,

2015

QuotedPricesinActiveMarketsforIdenticalAssets

(Level1)

SignificantOtherObservableInputs

(Level2)

SignificantUnobservable

Inputs(Level3)

Assets: Cashandcashequivalents: Moneymarketfunds $ 254,903 $ 254,903 $ — $ —U.S.government-sponsoredsecurities 3,340 — 3,340 —

Available-for-salesecurities: U.S.Treasurysecurities 50,091 50,091 — —U.S.government-sponsoredsecurities 128,016 — 128,016 —

ConvertibleNoteHedges 86,466 — — 86,466Totalassets $ 522,816 $ 304,994 $ 131,356 $ 86,466

Liabilities: NoteHedgeWarrants $ 75,328 $ — $ — $ 75,328

Totalliabilities $ 75,328 $ — $ — $ 75,328

FairValueMeasurementsatReportingDateUsing

December31,

2014

QuotedPricesinActiveMarketsforIdenticalAssets

(Level1)

SignificantOtherObservableInputs

(Level2)

SignificantUnobservable

Inputs(Level3)

Assets: Cashandcashequivalents: Moneymarketfunds $ 60,966 $ 60,966 $ — $ —

Available-for-salesecurities: U.S.Treasurysecurities 24,005 24,005 — —U.S.government-sponsoredsecurities 150,032 — 150,032 —

Totalassetsmeasuredatfairvalue $ 235,003 $ 84,971 $ 150,032 $ —

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

5.FairValueofFinancialInstruments(Continued)

TheCompany'sConvertibleNoteHedgesandtheNoteHedgeWarrantsarerecordedasderivativeassetsandliabilities,andareclassifiedasLevel3underthefairvaluehierarchy.ThesederivativesarenotactivelytradedandarevaluedusingtheBlack-Scholesoption-pricingmodelwhichrequirestheuseofsubjectiveassumptions.SignificantinputsusedtodeterminethefairvalueasofDecember31,2015includedthepricepershareoftheCompany'sClassAcommonstock,timetomaturityofthederivativeinstruments,thestrikepricesofthederivativeinstruments,therisk-freeinterestrate,andthevolatilityoftheCompany'sClassAcommonstock.TheCompanyhasnotpaidanddoesnotanticipatepayingcashdividendsonitssharesofcommonstockintheforeseeablefuture;therefore,theexpecteddividendyieldisassumedtobezero.ChangestotheseinputscouldmateriallyaffectthevaluationoftheConvertibleNoteHedgesandNoteHedgeWarrants.

ThefollowinginputswereusedinthefairmarketvaluationoftheConvertibleNoteHedgesandNoteHedgeWarrantsasofDecember31,2015:

TheConvertibleNoteHedgesandtheNoteHedgeWarrantsarerecordedatfairvalueateachreportingperiodandchangesinfairvaluearerecordedinotherexpense,netwithintheCompany'sconsolidatedstatementsofoperations.GainsandlossesforthesederivativefinancialinstrumentsarepresentedseparatelyintheCompany'sconsolidatedstatementsofcashflows.

F-41

ConvertibleNoteHedges

NoteHedgeWarrants

Risk-freeinterestrate(1) 2.0% 2.1%Timetomaturity 6.5 7.0Stockprice(2) $ 11.59 $ 11.59Strikeprice(3) $ 16.58 $ 21.50Commonstockvolatility(4) 45.0% 45.0%Dividendyield —% —%

(1) BasedonU.S.Treasuryyieldcurve,withtermscommensuratewiththetermsoftheConvertibleNoteHedgesandtheNoteHedgeWarrants.

(2) TheclosingpriceoftheCompany'sClassAcommonstockonthelasttradingdayoftheyearendedDecember31,2015.

(3) AspertherespectiveagreementsfortheConvertibleNoteHedgesandNoteHedgeWarrants.

(4) SelectedvolatilitybasedonhistoricalvolatilityandimpliedvolatilityoftheCompany'sClassAcommonstock.

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

5.FairValueofFinancialInstruments(Continued)

ThefollowingtablereflectsthechangeintheCompany'sLevel3convertiblenotederivativesfromtheirinitialvalueatissuancethroughDecember31,2015(inthousands):

11%PhaRMANotes

InJanuary2013,theCompanyclosedaprivateplacementof$175.0millioninaggregateprincipalamountofthePhaRMANotesdueonorbeforeJune15,2024.TheestimatedfairvalueofthePhaRMANoteswasapproximately$166.8millionandapproximately$182.5millionasofDecember31,2015andDecember31,2014,respectively,andwasdeterminedusingLevel3inputs,includingaquotedrate.

2.25%ConvertibleSeniorNotes

InJune2015,theCompanyissuedapproximately$335.7millionofits2022Notes.TheCompanyseparatelyaccountedfortheliabilityandequitycomponentsofthe2022Notesbyallocatingtheproceedsbetweentheliabilitycomponentandequitycomponent(Note10).Thefairvalueofthe2022Notes,whichdiffersfromtheircarryingvalue,isinfluencedbyinterestrates,thepriceoftheCompany'sClassAcommonstockandthevolatilitythereof,andthepricesforthe2022Notesobservedinmarkettrading,whichareLevel2inputs.Theestimatedfairvalueofthe2022NotesasofDecember31,2015wasapproximately$311.6million.

6.Available-for-SaleSecurities

Thefollowingtablessummarizetheavailable-for-salesecuritiesheldatDecember31,2015and2014(inthousands):

F-42

ConvertibleNoteHedges

NoteHedgeWarrants

BalanceatDecember31,2014 $ — $ —IssuanceofNoteHedgeWarrants — (70,849)PurchaseofConvertibleNoteHedges 91,915 —Changeinfairvalue,recordedasacomponentoflossonderivatives (5,449) (4,479)

BalanceatDecember31,2015 $ 86,466 $ (75,328)

Amortized

Cost

GrossUnrealized

Gains

GrossUnrealizedLosses

FairValue

December31,2015 U.S.Treasurysecurities $ 50,124 $ — $ (33) $ 50,091U.S.government-sponsoredsecurities 128,069 2 (55) 128,016

Total $ 178,193 $ 2 $ (88) $ 178,107

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

6.Available-for-SaleSecurities(Continued)

ThecontractualmaturitiesofallsecuritiesheldatDecember31,2015areoneyearorless.Therewere32and27available-for-salesecuritiesinanunrealizedlosspositionatDecember31,2015and2014,respectively,noneofwhichhadbeeninanunrealizedlosspositionformorethantwelvemonths.TheaggregatefairvalueofthesesecuritiesatDecember31,2015and2014wasapproximately$167.6millionandapproximately$101.9million,respectively.TheCompanyreviewsitsinvestmentsforother-than-temporaryimpairmentwheneverthefairvalueofaninvestmentislessthanamortizedcostandevidenceindicatesthataninvestment'scarryingamountisnotrecoverablewithinareasonableperiodoftime.Todeterminewhetheranimpairmentisother-than-temporary,theCompanyconsiderswhetherithastheabilityandintenttoholdtheinvestmentuntilamarketpricerecoveryandconsiderswhetherevidenceindicatingthecostoftheinvestmentisrecoverableoutweighsevidencetothecontrary.TheCompanydoesnotintendtoselltheinvestmentsanditisnotmorelikelythannotthattheCompanywillberequiredtoselltheinvestmentsbeforerecoveryoftheiramortizedcostbases,whichmaybematurity.TheCompanydidnotholdanysecuritieswithother-than-temporaryimpairmentatDecember31,2015.

Therewerenosalesofavailable-for-salesecuritiesduringtheyearsendedDecember31,2015,2014and2013.NetunrealizedholdinggainsorlossesfortheperiodthathavebeenincludedinaccumulatedothercomprehensiveincomewerenotmaterialtotheCompany'sconsolidatedresultsofoperations.

7.Inventory

Inventoryconsistedofthefollowing(inthousands):

InventoryrepresentslinaclotideAPIthatisavailableforcommercialsale.TheCompanyevaluatesinventorylevelsquarterlyandanyinventorythathasacostbasisinexcessofitsexpectednetrealizablevalue,inventorythatbecomesobsolete,inventoryinexcessofexpectedsalesrequirements,inventorythatfailstomeetcommercialsalespecificationsorisotherwiseimpairediswrittendownwithacorrespondingchargetothestatementofoperationsintheperiodthattheimpairmentisfirstidentified.

TheCompanyhasenteredintomultiplecommercialsupplyagreementsforthepurchaseoflinaclotideAPI.TwooftheCompany'sAPIsupplyagreementsforsupplyingAPItoitscollaborationpartnersoutsideofNorthAmericacontainminimumpurchasecommitments(Note11).PriortoOctober2015,theCompanywasalsoresponsibleforthemanufacturingoflinaclotideAPIforEurope.

F-43

Amortized

Cost

GrossUnrealized

Gains

GrossUnrealizedLosses

FairValue

December31,2014 U.S.Treasurysecurities $ 24,001 $ 4 $ — $ 24,005U.S.government-sponsoredsecurities 150,055 2 (25) 150,032

Total $ 174,056 $ 6 $ (25) $ 174,037

December31, 2015 2014 Rawmaterials $ — $ 4,954

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

7.Inventory(Continued)

AspartoftheCompany'snetrealizablevalueassessmentofitsinventory,theCompanyassesseswhetherithasanyexcessnon-cancelablepurchasecommitmentsresultingfromitsminimumsupplyagreementswithitssuppliersoflinaclotideAPI.

Thedeterminationofthenetrealizablevalueofinventoryandnon-cancelablepurchasecommitmentsisbasedondemandforecastsfromtheCompany'spartners,thatarereceivedquarterly,toprojectthenext24monthsofdemandandtheCompany'sinternalforecastforprojecteddemandinsubsequentyears.DuringthethreemonthsendedJune30,2015,Almirall,theCompany'sformerEuropeanpartner,reduceditsforecastedpurchasesoflinaclotideAPIforitsterritoryforthesubsequent18months.Inaddition,recentregulatorychangesmadebytheCFDAtothemarketingapprovalprocessinChinaresultedinapotentiallylengthenedapprovaltimelineforthecommercializationoflinaclotide.ThereduceddemandfromAlmirallandthepotentialextendedtimelineforcommercializationoflinaclotideinChinaresultedinlowerprojectedsalesoflinaclotideAPItotheCompany'spartnersinEuropeandChina.Asaresult,duringthethreemonthsendedJune30,2015,theCompanywrote-downthebalanceofitsinventoryofapproximately$5.0milliontozeroandaccruedapproximately$3.2millionforexcessnon-cancelableinventorypurchasecommitments.

InOctober2015,AlmiralltransferreditsexclusivelicensetodevelopandcommercializelinaclotideinEuropetoAllergan,andtheCompanyseparatelyenteredintoanamendmenttothelicenseagreementwithAllerganrelatingtothedevelopmentandcommercializationoflinaclotideinEurope.Pursuanttothetermsoftheamendment,AllerganassumedresponsibilityforthemanufacturingoflinaclotideAPIforEurope,aswellastheassociatedcosts(Note4).Upontheexecutionoftheamendmenttothelicenseagreement,theCompanyrecordedanincrementallossonnon-cancelableAPIpurchasecommitmentsofapproximately$6.9millionrelatedtooneoftheCompany'sAPIsupplyagreementscoveringthecommercialsupplyoflinaclotideAPIfortheEuropeanmarket.DuringthethreemonthsendedSeptember30,2015,theCompanyalsorecordedanincrementallossonnon-cancelableAPIpurchasecommitmentsrelatedtoin-processAPIbatches.AsofDecember31,2015,theCompanyhasevaluatedallremainingminimumpurchasecommitmentsunderitslinaclotideAPIsupplyagreementsthrough2023(Note11)andconcludedthattheapproximately$22.3millionofpurchasecommitmentsfromthesecondAPIsupplyagreementcoveringtheJapan,China,HongKongandMacaumarketsarerealizablebasedonthecurrentforecastsreceivedfromtheCompany'spartnersintheseterritoriesandtheCompany'sinternalforecasts.

DuringtheyearendedDecember31,2014,theCompanywrote-downapproximately$20.3millionininventorytoanestimatednetrealizablevalueofapproximately$5.0million.Thiswrite-downwasprimarilyattributabletoAlmirall'sreducedinventorydemandforecastsfortheEuropeanterritory,mainlyduetothesuspensionofcommercializationofCONSTELLAinGermanyandachallengingcommercialenvironmentthroughoutEurope.

Thewrite-downsofinventorytonetrealizablevalueandthelossonnon-cancelableinventorypurchasecommitmentsarerecordedasaseparatelineitemintheCompany'sconsolidatedstatementofoperations.AsofDecember31,2015,theaccrualforexcesspurchasecommitmentsisrecordedasapproximately$10.1millioninotherliabilitiesintheCompany'sconsolidatedbalancesheet.

F-44

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

8.PropertyandEquipment

Propertyandequipment,netconsistedofthefollowing(inthousands):

AsofDecember31,2015and2014,substantiallyalloftheCompany'smanufacturingequipmentwaslocatedintheUnitedKingdomatoneoftheCompany'scontractmanufacturers.AllotherpropertyandequipmentwerelocatedintheU.S.fortheperiodspresented.

TheCompanyhasenteredintocapitalleasesforcertaincomputers,vehiclesandofficeequipment(Note11).AsofDecember31,2015and2014,theCompanyhadapproximately$3.8millionandapproximately$5.5millionofassetsundercapitalleaseswithaccumulatedamortizationbalancesofapproximately$1.3millionandapproximately$2.0million,respectively.

Depreciationandamortizationexpenseofpropertyandequipment,includingamountsrecordedundercapitalleases,wasapproximately$11.6million,approximately$12.3millionandapproximately$11.7millionfortheyearsendedDecember31,2015,2014and2013,respectively.Inaddition,theCompanywrote-downapproximately$0.5millionofleaseholdimprovementassetsnotutilizedbytheCompanyunderthetermsofitssubleasesduringtheyearendedDecember31,2014.

9.AccruedExpenses

Accruedexpensesconsistedofthefollowing(inthousands):

F-45

December31, 2015 2014 Manufacturingequipment $ 3,748 $ 3,623Laboratoryequipment 13,681 15,126Computerandofficeequipment 3,596 5,185Furnitureandfixtures 2,062 2,093Software 12,715 13,921Constructioninprocess 375 1,457Leasedvehicles 3,039 4,472Leaseholdimprovements 38,465 36,928

77,681 82,805Lessaccumulateddepreciationandamortization (56,606) (52,979)

$ 21,075 $ 29,826

December31, 2015 2014 Salariesandbenefits $ 19,582 $ 16,582Professionalfees 507 574Accruedinterest 1,103 850Other 2,109 4,606

$ 23,301 $ 22,612

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

10.NotesPayable

2.25%ConvertibleSeniorNotesdue2022

InJune2015,theCompanyissuedapproximately$335.7millionaggregateprincipalamountofthe2022Notes.TheCompanyreceivednetproceedsofapproximately$324.0millionfromthesaleofthe2022Notes,afterdeductingfeesandexpensesofapproximately$11.7million.TheCompanyusedapproximately$21.1millionofthenetproceedsfromthesaleofthe2022NotestopaythenetcostoftheConvertibleNoteHedges(aftersuchcostwaspartiallyoffsetbytheproceedstotheCompanyfromthesaleoftheNoteHedgeWarrants),asdescribedbelow.

The2022Notesaregovernedbyanindenture(the"Indenture")betweentheCompanyandU.S.BankNationalAssociation,asthetrustee.The2022Notesareseniorunsecuredobligationsandbearcashinterestattheannualrateof2.25%,payableonJune15andDecember15ofeachyear,whichbeganonDecember15,2015.The2022NoteswillmatureonJune15,2022,unlessearlierconvertedorrepurchased.TheCompanymaysettleconversionsofthe2022Notesthroughpaymentordelivery,asthecasemaybe,ofcash,sharesofClassAcommonstockoftheCompanyoracombinationofcashandsharesofClassAcommonstock,attheCompany'soption(subjectto,andinaccordancewith,thesettlementprovisionsoftheIndenture).Theinitialconversionrateforthe2022Notesis60.3209sharesofClassAcommonstock(subjecttoadjustmentasprovidedforintheIndenture)per$1,000principalamountofthe2022Notes,whichisequaltoaninitialconversionpriceofapproximately$16.58pershareand20,249,665shares.Holdersofthe2022Notesmayconverttheir2022NotesattheiroptionatanytimepriortothecloseofbusinessonthebusinessdayimmediatelyprecedingDecember15,2021inmultiplesof$1,000principalamount,onlyunderthefollowingcircumstances:

• duringanycalendarquartercommencingafterthecalendarquarterendingonSeptember30,2015(andonlyduringsuchcalendarquarter),ifthelastreportedsalepriceoftheCompany'sClassAcommonstockforatleast20tradingdays(whetherornotconsecutive)duringaperiodof30consecutivetradingdaysendingonthelasttradingdayoftheimmediatelyprecedingcalendarquarterisgreaterthanorequalto130%oftheconversionpriceforthe2022Notesoneachapplicabletradingday;

• duringthefivebusinessdayperiodafteranyfiveconsecutivetradingdayperiod(the"measurementperiod")inwhichthe"tradingprice"(asdefinedintheIndenture)per$1,000principalamountofthe2022Notesforeachtradingdayofthemeasurementperiodwaslessthan98%oftheproductofthelastreportedsalepriceoftheCompany'sClassAcommonstockandtheconversionrateforthe2022Notesoneachsuchtradingday;or

• upontheoccurrenceofspecifiedcorporateeventsdescribedintheIndenture.

OnorafterDecember15,2021,untilthecloseofbusinessonthesecondscheduledtradingdayimmediatelyprecedingJune15,2022,holdersmayconverttheir2022Notes,inmultiplesof$1,000principalamount,attheoptionoftheholderregardlessoftheforegoingcircumstances.

Ifamake-wholefundamentalchange,asdescribedintheIndenture,occursandaholderelectstoconvertits2022Notesinconnectionwithsuchmake-wholefundamentalchange,suchholdermaybeentitledtoanincreaseintheconversionrateasdescribedintheIndenture.TheCompanymaynotredeemthe2022Notespriortothematuritydateandno"sinkingfund"isprovidedforbythe2022Notes,whichmeansthattheCompanyisnotrequiredtoperiodicallyredeemorretirethe2022Notes.UpontheoccurrenceofcertainfundamentalchangesinvolvingtheCompany,holdersofthe2022NotesmayrequiretheCompanytorepurchaseforcashallorpartoftheir2022Notesatarepurchaseprice

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NotestoConsolidatedFinancialStatements(Continued)

10.NotesPayable(Continued)

equalto100%oftheprincipalamountofthe2022Notestoberepurchased,plusaccruedandunpaidinterest.

TheIndenturedoesnotcontainanyfinancialcovenantsorrestricttheCompany'sabilitytorepurchasetheCompany'ssecurities,paydividendsormakerestrictedpaymentsintheeventofatransactionthatsubstantiallyincreasestheCompany'slevelofindebtedness.TheIndentureprovidesforcustomaryeventsofdefault.Inthecaseofaneventofdefaultwithrespecttothe2022Notesarisingfromspecifiedeventsofbankruptcyorinsolvency,alloutstanding2022Noteswillbecomedueandpayableimmediatelywithoutfurtheractionornotice.Ifanyothereventofdefaultwithrespecttothe2022NotesundertheIndentureoccursoriscontinuing,thetrusteeorholdersofatleast25%inaggregateprincipalamountofthethenoutstanding2022Notesmaydeclaretheprincipalamountofthe2022Notestobeimmediatelydueandpayable.Notwithstandingtheforegoing,theIndentureprovidesthat,upontheCompany'selection,andforupto180days,thesoleremedyforaneventofdefaultrelatingtocertainfailuresbytheCompanytocomplywithcertainreportingcovenantsintheIndentureconsistsexclusivelyoftherighttoreceiveadditionalinterestonthe2022Notes.

Inaccordancewithaccountingguidancefordebtwithconversionandotheroptions,theCompanyseparatelyaccountedfortheliabilityandequitycomponentsofthe2022Notesbyallocatingtheproceedsbetweentheliabilitycomponentandtheembeddedconversionoption,orequitycomponent,duetotheCompany'sabilitytosettlethe2022Notesincash,itsClassAcommonstock,oracombinationofcashandClassAcommonstockattheoptionoftheCompany.Thecarryingamountoftheliabilitycomponentwascalculatedbymeasuringthefairvalueofasimilarliabilitythatdoesnothaveanassociatedconvertiblefeature.TheallocationwasperformedinamannerthatreflectedtheCompany'snon-convertibledebtborrowingrateforsimilardebt.Theequitycomponentofthe2022Noteswasrecognizedasadebtdiscountandrepresentsthedifferencebetweenthegrossproceedsfromtheissuanceofthe2022Notesandthefairvalueoftheliabilityofthe2022Notesontheirrespectivedatesofissuance.Theexcessoftheprincipalamountoftheliabilitycomponentoveritscarryingamount,ordebtdiscount,isamortizedtointerestexpenseusingtheeffectiveinterestmethodoversevenyears,orthelifeofthe2022Notes.Theequitycomponentisnotremeasuredaslongasitcontinuestomeettheconditionsforequityclassification.

TheCompany'soutstandingConvertibleNotebalancesasofDecember31,2015consistedofthefollowing(inthousands):

Inconnectionwiththeissuanceofthe2022Notes,theCompanyincurredapproximately$11.7millionofdebtissuancecosts,whichprimarilyconsistedofinitialpurchasers'discountsandlegalandotherprofessionalfees.TheCompanyallocatedthesecoststotheliabilityandequitycomponentsbasedontheallocationoftheproceeds.Theportionofthesecostsallocatedtotheequitycomponentstotalingapproximately$4.0millionwererecordedasareductiontoadditionalpaid-incapital.Theportionofthesecostsallocatedtotheliabilitycomponentstotalingapproximately$7.7millionwere

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Principal $ 335,699Less:unamortizeddebtdiscount (107,636)Less:unamortizeddebtissuancecosts (7,443)Netcarryingamount $ 220,620Equitycomponent $ 114,199

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NotestoConsolidatedFinancialStatements(Continued)

10.NotesPayable(Continued)

recordedasareductioninthecarryingvalueofthedebtonthebalancesheetandareamortizedtointerestexpenseusingtheeffectiveinterestmethodovertheexpectedlifeofthe2022Notes.

TheCompanydeterminedtheexpectedlifeofthe2022Noteswasequaltotheirseven-yearterm.Theeffectiveinterestrateontheliabilitycomponentsofthe2022NotesfortheperiodfromthedateofissuancethroughDecember31,2015was9.34%.Thefollowingtablesetsforthtotalinterestexpenserecognizedrelatedtothe2022NotesduringtheyearendedDecember31,2015(inthousands):

Futureminimumpaymentsunderthe2022NotesasofDecember31,2015,areasfollows(inthousands):

ConvertibleNoteHedgeandWarrantTransactionswithRespectto2022Notes

TominimizetheimpactofpotentialdilutiontotheCompany'sClassAcommonstockholdersuponconversionofthe2022Notes,theCompanyenteredintotheConvertibleNoteHedgescovering20,249,665sharesoftheCompany'sClassAcommonstockinconnectionwiththeissuanceofthe2022Notes.TheConvertibleNoteHedgeshaveanexercisepriceofapproximately$16.58pershareandareexercisablewhenandifthe2022Notesareconverted.Ifuponconversionofthe2022Notes,thepriceoftheCompany'sClassAcommonstockisabovetheexercisepriceoftheConvertibleNoteHedges,thecounterpartiesareobligatedtodeliversharesoftheCompany'sClassAcommonstockand/orcashwithanaggregatevalueapproximatelyequaltothedifferencebetweenthepriceoftheCompany'sClassAcommonstockattheconversiondateandtheexerciseprice,multipliedbythenumberofsharesoftheCompany'sClassAcommonstockrelatedtotheConvertibleNoteHedgebeingexercised.

ConcurrentlywithenteringintotheConvertibleNoteHedges,theCompanyalsosoldNoteHedgeWarrantstotheConvertibleNoteHedgecounterpartiestoacquire20,249,665sharesoftheCompany'sClassAcommonstock,subjecttocustomaryanti-dilutionadjustments.ThestrikepriceoftheNote

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Contractualinterestexpense $ 4,069Amortizationofdebtissuancecosts 305Amortizationofdebtdiscount 6,563Totalinterestexpense $ 10,937

2016 $ 7,5532017 7,5532018 7,5532019 7,5532020 7,553Thereafter 347,030Totalfutureminimumpaymentsunderthe2022Notes 384,795Less:amountsrepresentinginterest (49,096)Less:unamortizeddebtdiscount (107,636)Less:unamortizeddebtissuancecosts (7,443)

Convertibleseniornotesbalance $ 220,620

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

10.NotesPayable(Continued)

HedgeWarrantsisinitially$21.50pershare,subjecttoadjustment,andsuchwarrantsareexercisableoverthe150tradingdayperiodbeginningonSeptember15,2022.TheNoteHedgeWarrantscouldhaveadilutiveeffectontheClassAcommonstocktotheextentthatthemarketpricepershareoftheCompany'sClassAcommonstockexceedstheapplicablestrikepriceofsuchwarrants.

TheConvertibleNoteHedgesandtheNoteHedgeWarrantsareseparatetransactionsenteredintobytheCompanyandarenotpartofthetermsofthe2022Notes.Holdersofthe2022NotesandtheNoteHedgeWarrantsdonothaveanyrightswithrespecttotheConvertibleNoteHedges.TheCompanypaidapproximately$91.9millionfortheConvertibleNoteHedgesandrecordedthisamountasalong-termassetontheconsolidatedbalancesheet.TheCompanyreceivedapproximately$70.8millionfortheNoteHedgeWarrantsandrecordedthisamountasalong-termliability,resultinginanetcosttotheCompanyofapproximately$21.1million.TheConvertibleNoteHedgesandNoteHedgeWarrantsareaccountedforasderivativeassetsandliabilities,respectively,inaccordancewithASC815(Note5).

11%PhaRMANotesdue2024

InJanuary2013,theCompanyclosedaprivateplacementof$175.0millioninaggregateprincipalamountofnotesdueonorbeforeJune15,2024.ThePhaRMANotesbearanannualinterestrateof11%,withinterestpayableMarch15,June15,September15andDecember15ofeachyear(eacha"PaymentDate")whichbeganonJune15,2013.OnMarch15,2014,theCompanybeganmakingquarterlypaymentsonthePhaRMANotesequaltothegreaterof(i)7.5%ofnetsalesofLINZESSintheU.S.fortheprecedingquarter(the"SyntheticRoyaltyAmount")and(ii)accruedandunpaidinterestonthePhaRMANotes(the"RequiredInterestAmount").PrincipalonthePhaRMANoteswillberepaidinanamountequaltotheSyntheticRoyaltyAmountminustheRequiredInterestAmount,whenthisisapositivenumber,untiltheprincipalhasbeenpaidinfull.GiventheprincipalpaymentsonthePhaRMANotesarebasedontheSyntheticRoyaltyAmount,whichwillvaryfromquartertoquarter,thePhaRMANotesmayberepaidpriortoJune15,2024,thefinallegalmaturitydate.TheCompanymadeprincipalpaymentsofapproximately$13.9millionthroughDecember31,2015,andexpectstopayapproximately$25.0millionoftheprincipalwithintwelvemonthsfollowingDecember31,2015.

ThePhaRMANotesaresecuredsolelybyasecurityinterestinasegregatedbankaccountestablishedtoreceivetherequiredquarterlypayments.UptotheamountoftherequiredquarterlypaymentsunderthePhaRMANotes,Allerganwilldeposititsquarterlyprofit(loss)sharingpaymentsduetotheCompanyunderthecollaborationagreementforNorthAmerica,ifany,intothesegregatedbankaccount.IfthefundsdepositedbyAllerganintothesegregatedbankaccountareinsufficienttomakearequiredpaymentofinterestorprincipalonaparticularPaymentDate,theCompanyisobligatedtodepositsuchshortfalloutoftheCompany'sgeneralfundsintothesegregatedbankaccount.

ThePhaRMANotesmayberedeemedatanytimepriortomaturity,inwholeorinpart,attheoptionoftheCompany.TheCompanywillpayaredemptionpriceequaltothepercentageofoutstandingprincipalbalanceofthePhaRMANotesbeingredeemedspecifiedbelowfortheperiodin

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NotestoConsolidatedFinancialStatements(Continued)

10.NotesPayable(Continued)

whichtheredemptionoccurs(plustheaccruedandunpaidinteresttotheredemptiondateonthePhaRMANotesbeingredeemed):

ThePhaRMANotescontaincertaincovenantsrelatedtotheCompany'sobligationswithrespecttothecommercializationofLINZESSandtherelatedcollaborationagreementwithAllerganforNorthAmerica,aswellascertaincustomarycovenants,includingcovenantsthatlimitorrestricttheCompany'sabilitytoincurcertainliens,mergeorconsolidateormakedispositionsofassets.ThePhaRMANotesalsospecifyanumberofeventsofdefault(someofwhicharesubjecttoapplicablecureperiods),including,amongotherthings,covenantdefaults,othernon-paymentdefaults,andbankruptcyandinsolvencydefaults.Upontheoccurrenceofaneventofdefault,subjecttocureperiodsincertaincircumstances,allamountsoutstandingmaybecomeimmediatelydueandpayable.

Theupfrontcashproceedsof$175.0million,lessadiscountofapproximately$0.4millionforpaymentoflegalfeesincurredonbehalfofthenoteholders,wererecordedasnotespayableatissuance.TheCompanyalsocapitalizedapproximately$7.3millionofdebtissuancecostsinconnectionwiththePhaRMANotes.DuringthethreemonthsendedJune30,2015,theCompanyearlyadoptedASU2015-03,whichrequiresdebtissuancecoststobepresentedinanentity'sbalancesheetasadirectdeductionfromtheassociateddebtliability(Note2).TheCompany'sadoptionofASU2015-03resultedinabalancesheetreclassificationofissuancecostsinconnectionwiththePhaRMANotesofapproximately$1.4millionofprepaidexpensesandothercurrentassetsandapproximately$2.8millionofotherassetstoareductioninPhaRMANotespayableasofDecember31,2014.ThePhaRMANotesissuancecostsanddiscountarebeingamortizedovertheestimatedtermoftheobligationusingtheeffectiveinterestmethod.TherepaymentprovisionsrepresentembeddedderivativesthatareclearlyandcloselyrelatedtothePhaRMANotesandassuchdonotrequireseparateaccountingtreatment.

TheaccountingforthePhaRMANotesrequirestheCompanytomakecertainestimatesandassumptionsaboutthefuturenetsalesofLINZESSintheU.S.LINZESShasbeenmarketedsinceDecember2012andtheestimatesofthemagnitudeandtimingofLINZESSnetsalesaresubjecttovariabilityandsignificantuncertainty.Theseestimatesandassumptionsarelikelytochange,whichmayresultinfutureadjustmentstotheportionofthePhaRMANotesthatisclassifiedasacurrentliability,theamortizationofdebtissuancecostsanddiscountsaswellastheaccretionoftheinterestexpense.AnysuchadjustmentscouldbematerialtotheCompany'sconsolidatedfinancialstatements.

11.CommitmentsandContingencies

Lease Commitments

TheCompanyleasesitsfacility,offsitedatastoragelocation,vehiclesandvariousequipmentunderleasesthatexpireatvaryingdatesthrough2018.Certainoftheseleasescontainrenewaloptions,andrequiretheCompanytopayoperatingcosts,includingpropertytaxes,insurance,maintenanceandotheroperatingexpenses.

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PaymentDates RedemptionPercentage

FromandincludingJanuary1,2015toandincludingDecember31,2015 105.50%FromandincludingJanuary1,2016toandincludingDecember31,2016 102.75%FromandincludingJanuary1,2017andthereafter 100.00%

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

11.CommitmentsandContingencies(Continued)

AsofDecember31,2015,theCompanyrentsofficeandlaboratoryspaceatitscorporateheadquartersinCambridge,Massachusettsunderanon-cancelableoperatinglease,enteredintoinJanuary2007,asamended("2007LeaseAgreement").The2007LeaseAgreementcontainsvariousprovisionsforrenewalattheCompany'soptionand,incertaincases,freerentperiodsandrentescalationtiedtotheConsumerPriceIndex.Therentexpense,inclusiveoftheescalatingrentpaymentsandfreerentperiods,isrecognizedonastraight-linebasisovertheleasetermthroughJanuary2018.TheCompanymaintainsaletterofcreditsecuringitsobligationsundertheleaseagreementofapproximately$7.6million,whichisrecordedasrestrictedcash.Inadditiontorentsdueunderthislease,theCompanyisobligatedtopayfacilitiescharges,includingutilitiesandtaxes.Inconnectionwiththe2007LeaseAgreement,theCompanywasprovidedallowancestotalingapproximately$22.9millionasreimbursementforfinancingcapitalimprovementstothefacility.Thereimbursementamountisrecordedasdeferredrentontheconsolidatedbalancesheetsandisbeingamortizedasareductiontorentexpenseovertheleaseterm,asapplicable.

DuringthethreemonthsendedSeptember30,2014,theCompanyenteredintoarrangements,withthelandlord'sconsent,tosubleaseaportionofitsCambridge,Massachusettscorporateheadquartersasitdidnotintendtousethespaceforitsoperations.Underthefirstsublease,theCompany'soperatingleaseobligationsthrough2018arepartiallyoffsetbyfuturesubleasepaymentstoitofapproximately$16.1million(ofwhichapproximately$5.0millionhasbeenreceivedthroughDecember31,2015)andunderthesecondsublease,theCompany'soperatingleaseobligationsthrough2016arepartiallyoffsetbyfuturesubleasepaymentstoitofapproximately$1.9million(ofwhichapproximately$1.1millionhasbeenreceivedthroughDecember31,2015).DuringtheyearendedDecember31,2014,theCompanyrecordedaggregatechargesofapproximately$2.6million,whichrepresentitsobligationstothelandlordassociatedwiththesubletspace,netofsubleaseincomeduetotheCompanyunderthesubleases,andapartialwrite-downofleaseholdimprovementassetsnotutilizedbytheCompanyunderthetermsofthesubleases.

In2013,theCompanyenteredinto36-monthcapitalleases(the"2013VehicleLeases")forthevehiclefleetforitsfield-basedsalesforceandmedicalscienceliaisons.The2013VehicleLeasesexpireatvarioustimesthroughSeptember2016.Inaccordancewiththetermsof2013VehicleLeases,theCompanymaintainsaletterofcreditsecuringitsobligationsundertheleaseagreementsof$0.5million,whichisrecordedasrestrictedcash.

InNovember2015,theCompanyenteredinto12-monthcapitalleases(the"2015VehicleLeases")forcertainvehicleswithinitsvehiclefleetforitsfield-basedsalesforceandmedicalscienceliaisons.The2015VehicleLeasesexpireatvaryingtimesbeginninginNovember2016.Inaccordancewiththetermsofthe2015VehicleLeases,theCompanymaintainsaletterofcreditsecuringitsobligationsundertheleaseagreementsof$0.6million,whichisrecordedasrestrictedcash.Inconnectionwithenteringintothe2015VehicleLeases,certainofthe2013VehicleLeaseswereterminatedasofDecember31,2015.AtDecember31,2015,theweightedaverageinterestrateontheoutstanding2015VehicleLeaseobligationswasapproximately3.3%andtheweightedaverageinterestrateontheoutstanding2013VehicleLeaseobligationswasapproximately7.7%.

TheCompanyhasalsoenteredintocapitalleasesforcertaincomputerandofficeequipment.ThesecapitalleasesexpireinApril2018.AtDecember31,2015,theweightedaverageinterestrateontheoutstandingcapitalleaseobligationswasapproximately14.5%.

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NotestoConsolidatedFinancialStatements(Continued)

11.CommitmentsandContingencies(Continued)

AtDecember31,2015,futureminimumleasepaymentsunderallnon-cancelableleasearrangementswereasfollows(inthousands):

Rentalexpense,netofsubleaseincomeofapproximately$5.3millionandapproximately$2.6million,undertheoperatingleasesamountedtoapproximately$6.3millionandapproximately$10.2millionfortheyearsendedDecember31,2015and2014,respectively.Rentalexpenseamountedtoapproximately$8.8millionfortheyearendedDecember31,2013.

Commercial Supply Commitments

TheCompanyhasenteredintomultiplecommercialsupplyagreementsforthepurchaseoflinaclotidefinisheddrugproductandAPI.TwooftheCompany'sAPIsupplyagreementsforsupplyingAPItoitscollaborationpartnersoutsideofNorthAmericacontainminimumpurchasecommitments.InJuly2015andAugust2015,theCompanyenteredintoamendmentstoitsagreementswithtwoofitssuppliersoflinaclotideAPI.OneamendmentreducedtheCompany'snon-cancelablepurchasecommitmentsandtheotherincreasedtheCompany'snon-cancelablepurchasecommitments,butextendedthetimeframeoverwhichtheCompanymustpurchasetheAPI.Theamendedcontractsincludetotalnon-cancelablecommercialsupplypurchaseobligationsofapproximately$34.9millionthrough2023.

DuringtheyearendedDecember31,2015,theCompanyrecognizedapproximately$10.1millionasanaccrualforexcesspurchasescommitmentsthatisrecordedinotherliabilitiesintheCompany'sconsolidatedbalancesheet(Note7).Paymentsundertheseaccruedexcesspurchasecommitmentsbeginin2017,andareapproximately$2.5millionineachoftheyears2017,2018,2019and2020.AsofDecember31,2015,theCompany'sunrecognizedminimumpurchaserequirementsandotherfirm

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OperatingLease

Payments

LeasePaymentstobeReceivedfromSubleases

NetOperatingLeasePayments

CapitalLease

Payments 2016 $ 15,617 $ (5,740) $ 9,878 $ 2,7562017 16,170 (5,665) 10,505 2532018 635 (476) 159 85Totalfutureminimumleasepayments $ 32,422 $ (11,881) $ 20,542 $ 3,094Less:amountsrepresentinginterest (157)

CapitalleaseobligationsatDecember31,2015 2,937Less:currentportionofcapitalleaseobligations (2,631)

CapitalleaseObligations,netofcurrentportion $ 306

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NotestoConsolidatedFinancialStatements(Continued)

11.CommitmentsandContingencies(Continued)

commitmentsrelatedtothesupplycontractsassociatedwiththeterritoriesnotcoveredbythepartnershipswithAllerganforNorthAmericawereasfollows(inthousands):

Inaddition,theCompanyandAllerganarejointlyobligatedtomakeminimumpurchasesoflinaclotideAPIfortheterritoriescoveredbytheCompany'scollaborationwithAllerganforNorthAmerica.Currently,Allerganfulfillsallsuchminimumpurchasecommitmentsand,asaresult,theyareexcludedfromtheamountsabove.

Commitments Related to the Collaboration and License Agreements

UnderthecollaborativeagreementswithAllerganforNorthAmericaandAstraZenecaforChina,HongKongandMacau,respectively,theCompanyshareswithAllerganandAstraZenecaalldevelopmentandcommercializationcostsrelatedtolinaclotideintheU.S.andforChina,HongKongandMacau,respectively.TheactualamountsthattheCompanypaysitspartnersorthatpartnerspaytotheCompanywilldependonnumerousfactorsoutsideoftheCompany'scontrol,includingthesuccessofcertainclinicaldevelopmenteffortswithrespecttolinaclotide,thecontentandtimingofdecisionsmadebytheregulators,thereimbursementandcompetitivelandscapearoundlinaclotideandtheCompany'sotherproductcandidates,andotherfactors.

Inaddition,theCompanyhascommitmentstomakepotentialfuturemilestonepaymentstothirdpartiesundercertainofitslicenseandcollaborationarrangements.Thesemilestonesprimarilyincludethecommencementandresultsofclinicaltrials,obtainingregulatoryapprovalinvariousjurisdictionsandthefuturecommercialsuccessofdevelopmentprograms,theoutcomeandtimingofwhicharedifficulttopredictandsubjecttosignificantuncertainty.Inadditiontothemilestonesdiscussedabove,theCompanyisobligatedtopayroyaltiesonfuturesales,whicharecontingentongeneratinglevelsofsalesoffutureproductsthathavenotbeenachievedandmayneverbeachieved.

TheseagreementsaremorefullydescribedinNote4,Collaboration,LicenseandCo-promotionAgreements,totheseconsolidatedfinancialstatements.

Other Funding Commitments

AsofDecember31,2015,theCompanyhasseveralon-goingstudiesinvariousclinicaltrialstages.TheCompany'smostsignificantclinicaltrialexpendituresaretocontractresearchorganizations("CRO").ThecontractswithCROsgenerallyarecancellable,withnotice,attheCompany'soptionanddonothaveanysignificantcancellationpenalties.

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2016 $ 2,2592017 2,2592018 2,3222019 3,0962020 3,096Thereafter 9,288Totalunrecognizedminimumpurchaserequirements $ 22,320

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

11.CommitmentsandContingencies(Continued)

Guarantees

AspermittedunderDelawarelaw,theCompanyindemnifiesitsofficersanddirectorsforcertaineventsoroccurrenceswhiletheofficerordirectoris,orwas,servingattheCompany'srequestinsuchcapacity.ThemaximumpotentialamountoffuturepaymentstheCompanycouldberequiredtomakeisunlimited;however,theCompanyhasdirectors'andofficers'insurancecoveragethatisintendedtolimititsexposureandenableittorecoveraportionofanyfutureamountspaid.

TheCompanyentersintocertainagreementswithotherpartiesintheordinarycourseofbusinessthatcontainindemnificationprovisions.Thesetypicallyincludeagreementswithdirectorsandofficers,businesspartners,contractors,landlords,clinicalsitesandcustomers.Undertheseprovisions,theCompanygenerallyindemnifiesandholdsharmlesstheindemnifiedpartyforlossessufferedorincurredbytheindemnifiedpartyasaresultoftheCompany'sactivities.Theseindemnificationprovisionsgenerallysurviveterminationoftheunderlyingagreements.ThemaximumpotentialamountoffuturepaymentstheCompanycouldberequiredtomakeundertheseindemnificationprovisionsisunlimited.However,todatetheCompanyhasnotincurredmaterialcoststodefendlawsuitsorsettleclaimsrelatedtotheseindemnificationprovisions.Asaresult,theestimatedfairvalueoftheseobligationsisminimal.Accordingly,theCompanyhadnoliabilitiesrecordedfortheseobligationsasofDecember31,2015and2014.

Litigation

Fromtimetotime,theCompanyisinvolvedinvariouslegalproceedingsandclaims,eitherassertedorunasserted,whichariseintheordinarycourseofbusiness.Whiletheoutcomeoftheseotherclaimscannotbepredictedwithcertainty,managementdoesnotbelievethattheoutcomeofanyoftheseongoinglegalmatters,individuallyandinaggregate,willhaveamaterialadverseeffectontheCompany'sconsolidatedfinancialstatements.

12.Stockholders'Equity

PreferredStock

TheCompany'spreferredstockmaybeissuedfromtimetotimeinoneormoreseries,witheachsuchseriestoconsistofsuchnumberofsharesandtohavesuchtermsasadoptedbytheboardofdirectors.Authorityisgiventotheboardofdirectorstodetermineandfixsuchvotingpowers,fullorlimited,ornovotingpowers,andsuchdesignations,preferencesandrelativeparticipating,optionalorotherspecialrights,andqualifications,limitationorrestrictionsthereof,includingwithoutlimitation,dividendrights,conversionrights,redemptionprivilegesandliquidationpreferences.

CommonStock

TheCompanyhasdesignatedtwoseriesofcommonstock,SeriesAcommonstock("ClassACommonStock")andSeriesBcommonstock("ClassBCommonStock").AllsharesofcommonstockthatwereoutstandingimmediatelypriortoAugust2008wereconvertedintosharesofClassBCommonStock.TheholdersofClassACommonStockandClassBCommonStockvotetogetherasasingleclass.ClassACommonStockisentitledtoonevotepershare.ClassBCommonStockisalsoentitledtoonevotepersharewiththefollowingexceptions:(1)afterthecompletionofaninitialpublicoffering("IPO")oftheCompany'sstock,theholdersoftheClassBCommonStockareentitledtoten

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NotestoConsolidatedFinancialStatements(Continued)

12.Stockholders'Equity(Continued)

votespershareifthematterisanadoptionofanagreementofmergerorconsolidation,anadoptionofaresolutionwithrespecttothesale,lease,orexchangeoftheCompany'sassetsoranadoptionofdissolutionorliquidationoftheCompany,and(2)ClassBcommonstockholdersareentitledtotenvotespershareonanymatterifanyindividual,entity,orgroupseekstoobtainorhasobtainedbeneficialownershipof30%ormoreoftheCompany'soutstandingsharesofcommonstock.ClassBCommonStockcanbesoldatanytimeandirrevocablyconvertstoClassACommonStock,onaone-for-onebasis,uponsaleortransfer.TheClassBCommonStockisalsoentitledtoaseparateclassvotefortheissuanceofadditionalsharesofClassBCommonStock(exceptpursuanttodividends,splitsorconvertiblesecurities),oranyamendment,alterationorrepealofanyprovisionoftheCompany'scharter.AllClassBCommonStockwillautomaticallyconvertintoClassACommonStockupontheearliestof:

• thelaterof(1)thefirstdateonwhichthenumberofsharesofClassBCommonStockthenoutstandingislessthan19,561,556whichrepresents25%ofthenumberofsharesofClassBCommonStockoutstandingimmediatelyfollowingthecompletionoftheCompany'sIPOor(2)December31,2018;

• December31,2038;or

• adateagreedtoinwritingbyamajorityoftheholdersoftheClassBCommonStock.

TheCompanyhasreservedsuchnumberofsharesofClassACommonStockasthereareoutstandingsharesofClassBCommonStocksolelyforthepurposeofeffectingtheconversionoftheClassBCommonStock.

TheholdersofsharesofClassACommonStockandClassBCommonStockareentitledtodividendsifandwhendeclaredbytheboardofdirectors.Intheeventthatdividendsarepaidintheformofcommonstockorrightstoacquirecommonstock,theholdersofsharesofClassACommonStockshallreceiveClassACommonStockorrightstoacquireClassACommonStockandtheholdersofsharesofClassBCommonStockshallreceiveClassBCommonStockorrightstoacquireClassBCommonStock,asapplicable.

Intheeventofavoluntaryorinvoluntaryliquidation,dissolution,distributionofassets,orwindingupoftheCompany,theholdersofsharesofClassACommonStockandtheholdersofsharesofClassBCommonStockareentitledtoshareequally,onapersharebasis,inallassetsoftheCompanyofwhateverkindavailablefordistributiontotheholdersofcommonstock.

TheCompanyhasreserved,outofitsauthorizedbutunissuedsharesofClassACommonStock,sufficientsharestoaffecttheconversionofthe2022NotesandtheNoteHedgeWarrants,pursuanttothetermsthereof(Note10).

Duringthesecondquarterof2013,theCompanysold11,204,948sharesofitsClassACommonStockthroughafirmcommitment,underwrittenpublicofferingatapricetothepublicof$13.00pershare.Asaresultofthisoffering,theCompanyreceivedaggregatenetproceeds,afterunderwritingdiscountsandcommissionsandotherofferingexpenses,ofapproximately$137.8million.

Inthefirstquarterof2014,theCompanysold15,784,325sharesofitsClassACommonStockthroughafirmcommitment,underwrittenpublicofferingatapricetothepublicof$12.75pershare.Asaresultofthisoffering,theCompanyreceivedaggregatenetproceeds,afterunderwritingdiscountsandcommissionsandotherofferingexpenses,ofapproximately$190.4million.

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TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

13.StockBenefitPlans

Thefollowingtablesummarizestheexpenserecognizedforshare-basedcompensationarrangementsintheconsolidatedstatementsofoperations(inthousands):

Share-basedcompensationisreflectedintheconsolidatedstatementsofoperationsasfollowsfortheyearsendedDecember31,2015,2014and2013(inthousands):

OnNovember4,2014,theCompanyagreedtoacceleratethevestingofallofaformerexecutiveofficer'soutstandingunvestedstockoptionsontheexecutiveofficer'sdeparturedateofDecember31,2014,andtoallowtheexerciseofvestedstockoptionsforuptotwoyearssubsequenttothedeparturedate,oruntiltheirexpiration,whicheverisearlier.Theseequitymodificationsresultedinanincrementalchargeofapproximately$2.3million,whichwasrecordedwithinselling,generalandadministrativeexpensesduringtheyearendedDecember31,2014.

StockBenefitPlans

TheCompanyhastwoshare-basedcompensationplanspursuanttowhichawardsarecurrentlybeingmade:theAmendedandRestated2010Employee,DirectorandConsultantEquityIncentivePlan("2010EquityPlan")andtheAmendedandRestated2010EmployeeStockPurchasePlan("2010PurchasePlan").TheCompanyalsohastwoshare-basedcompensationplansunderwhichthereareoutstandingawards,butfromwhichnofurtherawardswillbemade:theAmendedandRestated2005StockIncentivePlan("2005EquityPlan")andtheAmendedandRestated2002StockIncentivePlan("2002EquityPlan").AtDecember31,2015,therewere13,486,020sharesavailableforfuturegrantunderallsuchplans.

2010EquityPlan

During2010,theCompany'sstockholdersapprovedthe2010EquityPlanunderwhichstockoptions,restrictedstockawards,RSUs,andotherstock-basedawardsmaybegrantedtoemployees,

F-56

YearsEndedDecember31, 2015 2014 2013 Employeestockoptions $ 20,668 $ 19,373 $ 17,981Restrictedstockunits 1,536 — —Restrictedstockawards 2,408 2,671 552Non-employeestockoptions — 2,618 271Employeestockpurchaseplan 833 941 995Workforcereduction — 551 —Stockaward 24 30 30

$ 25,469 $ 26,184 $ 19,829

YearsEndedDecember31, 2015 2014 2013 Researchanddevelopment $ 10,065 $ 9,482 $ 9,178Selling,generalandadministrative 15,404 16,702 10,651

$ 25,469 $ 26,184 $ 19,829

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

13.StockBenefitPlans(Continued)

officers,directors,orconsultantsoftheCompany.Therewere6,000,000sharesofcommonstockinitiallyreservedforissuanceunderthe2010EquityPlan.Thenumberofsharesavailableforfuturegrantmaybeincreasedonthefirstdayofeachfiscalyearbyanamountequaltothelesserof:(i)6,600,000;(ii)4%ofthenumberofoutstandingsharesofcommonstockonthefirstdayofeachfiscalyear;and(iii)anamountdeterminedbytheboardofdirectors.AwardsthatarereturnedtotheCompany'sotherequityplansasaresultoftheirexpiration,cancellation,terminationorrepurchaseareautomaticallymadeavailableforissuanceunderthe2010EquityPlan.AtDecember31,2015,therewere11,410,963sharesavailableforfuturegrantunderthe2010EquityPlan.

2010PurchasePlan

During2010,theCompany'sstockholdersapprovedthe2010PurchasePlan,whichgiveseligibleemployeestherighttopurchasesharesofcommonstockatthelowerof85%ofthefairmarketvalueonthefirstorlastdayofanofferingperiod.Eachofferingperiodissixmonths.Therewere400,000sharesofcommonstockinitiallyreservedforissuancepursuanttothe2010PurchasePlan.Thenumberofsharesavailableforfuturegrantunderthe2010PurchasePlanmaybeincreasedonthefirstdayofeachfiscalyearbyanamountequaltothelesserof:(i)1,000,000shares,(ii)1%oftheClassAsharesofcommonstockoutstandingonthelastdayoftheimmediatelyprecedingfiscalyear,or(iii)suchlessernumberofsharesasisdeterminedbytheboardofdirectors.AtDecember31,2015,therewere2,075,057sharesavailableforfuturegrantunderthe2010PurchasePlan.

2005EquityPlanand2002EquityPlan

The2005EquityPlanand2002EquityPlanprovidedforthegrantingofstockoptions,restrictedstockawards,RSUs,andothershare-basedawardstoemployees,officers,directors,consultants,oradvisorsoftheCompany.AtDecember31,2015,therewerenosharesavailableforfuturegrantunderthe2005EquityPlanorthe2002EquityPlan.

RestrictedStockAwards

In2015,theCompanygrantedanaggregateof151,604sharesofClassACommonStocktoindependentmembersoftheboardofdirectorsunderrestrictedstockagreementsinaccordancewiththetermsofthe2010EquityPlanandtheCompany'sdirectorcompensationplan,effectiveinJanuary2014.ThesesharesofrestrictedstockvestratablyovertheperiodofservicefromtheCompany's2015annualmeetingofstockholdersthroughtheCompany's2016annualmeetingofstockholders,providedtheindividualcontinuestoserveontheCompany'sboardofdirectorsthrougheachvestdate.

In2014,theCompanygrantedanaggregateof288,606sharesofcommonstocktoindependentmembersoftheboardofdirectorsunderrestrictedstockagreementsinaccordancewiththetermsofthe2010EquityPlanandtheCompany'sdirectorcompensationplan,effectiveinJanuary2014.ThesesharesofrestrictedstockvestedratablyovertheperiodofservicefromJanuary2014throughtheCompany's2015annualmeetingofstockholders,providedtheindividualcontinuedtoserveontheCompany'sboardofdirectorsthrougheachvestdate.

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

13.StockBenefitPlans(Continued)

AsummaryoftheunvestedsharesofrestrictedstockasofDecember31,2015ispresentedbelow:

RestrictedStockUnits

In2015,theCompanybeganutilizingRSUs,inadditiontostockoptionsaspartoftheequitycompensationitprovidestoitsemployees,eachRSUrepresentingtherighttoreceiveoneshareoftheCompany'sClassACommonStockpursuanttothetermsoftheapplicableawardagreementandgrantedpursuanttothetermsoftheCompany's2010EquityPlan.TheRSUsgenerallyvest25%peryearontheapproximateanniversaryofthedateofgrantuntilfullyvested,providedtheemployeeremainscontinuouslyemployedwiththeCompanythrougheachvestingdate.SharesoftheCompany'sClassACommonStockaredeliveredtotheemployeeuponvesting,subjecttopaymentofapplicablewithholdingtaxes.ThefairvalueofallRSUsisbasedonthemarketvalueoftheCompany'sClassACommonStockonthedateofgrant.Compensationexpense,includingtheeffectofestimatedforfeitures,isrecognizedovertheapplicableserviceperiod.

AsummaryofRSUactivityfortheyearendedDecember31,2015isasfollows:

StockOptions

StockoptionsgrantedundertheCompany'sequityplansgenerallyhaveaten-yeartermandvestoveraperiodoffouryears,providedtheindividualcontinuestoserveattheCompanythroughthevestingdates.Optionsgrantedunderallequityplansareexercisableatapricepersharenotlessthanthefairmarketvalueoftheunderlyingcommonstockonthedateofgrant.Theestimatedfairvalueofoptions,includingtheeffectofestimatedforfeitures,isrecognizedovertherequisiteserviceperiod,whichistypicallythevestingperiodofeachoption.

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NumberofShares

Weighted-Average

GrantDateFairValue

UnvestedasofDecember31,2014 98,890 $ 13.77Granted 151,604 $ 14.16Vested (175,992) $ 13.95Forfeited — $ —

UnvestedasofDecember31,2015 74,502 $ 14.14

NumberofShares

Weighted-Average

GrantDateFairValue

UnvestedasofDecember31,2014 — $ —Granted 936,414 $ 13.44Vested — $ —Forfeited (36,363) $ 15.46

UnvestedasofDecember31,2015 900,051 $ 13.36

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

13.StockBenefitPlans(Continued)

TheweightedaverageassumptionsusedtoestimatethefairvalueofthestockoptionsusingtheBlack-Scholesoption-pricingmodelwereasfollowsfortheyearsendedDecember31,2015,2014and2013:

PriortoFebruary3,2010,theCompanywasnotpubliclytradedandthereforehadnotradinghistory.Therefore,theCompanyhasbeenusingablendedvolatilityratethatblendsitsownhistoricalvolatilitywiththatofcomparablepubliccompanies.Forpurposesofidentifyingcomparablecompanies,theCompanyselectedpublicly-tradedcompaniesthatareinthebiopharmaceuticalindustry,haveproductsorproductcandidatesinsimilartherapeuticareasandstagesofnonclinicalandclinicaldevelopment,havesufficienttradinghistorytoderiveahistoricvolatilityrateandhavesimilarvestingtermsastheCompany'soptions.Beginningin2014,theCompanyestimatestheexpectedtermusinghistoricaldata.Therisk-freeinterestrateusedforeachgrantisbasedonazero-couponU.S.Treasuryinstrumentwitharemainingtermsimilartotheexpectedtermoftheshare-basedaward.TheCompanyhasnotpaidanddoesnotanticipatepayingcashdividendsonitssharesofcommonstockintheforeseeablefuture;therefore,theexpecteddividendyieldisassumedtobezero.

Theweighted-averagegrantdatefairvaluepershareofoptionsgrantedduringtheyearsendedDecember31,2015,2014and2013was$6.73,$6.47and$5.96,respectively.

TheCompany'sClassBCommonStockisissuableuponexerciseofoptionsgrantedpriortotheclosingoftheCompany'sIPOunderthe2002EquityPlanandthe2005EquityPlan,anditsClassACommonStockisissuableuponexerciseofalloptionsgrantedaftertheclosingoftheCompany'sIPOundertheCompany'sequityplans.AtDecember31,2015,optionsexercisableinto4,554,128sharesofClassBCommonStockand16,012,732sharesofClassACommonStockwereoutstanding.

Subjecttoapprovalbytheboardofdirectors,optiongranteesunderthe2002EquityPlanandthe2005EquityPlanmayhavetherighttoexerciseanoptionpriortovesting.Theexerciseofthesesharesisnotsubstantiveandasaresult,thecashpaidfortheexercisepricesisconsideredadepositorprepaymentoftheexercisepriceandisrecordedasaliability.AmountsreceivedupontheexerciseoftheseshareswerenotmaterialtotheconsolidatedfinancialstatementsatDecember31,2015and2014.

TheCompany,fromtimetotime,issuescertaintime-acceleratedstockoptionstocertainemployees.Thevestingoftheseoptionsacceleratesupontheachievementofcertainperformance-basedmilestones.Ifthesecriteriaarenotmet,suchoptionswillvestbetweensixandtenyearsafterthedateofgrant.DuringtheyearendedDecember31,2015,nosharesvestedasaresultofmilestoneorserviceperiodachievements.AtDecember31,2015and2014,therewere400,000sharesissuableunderunvestedtime-acceleratedoptions.Whenachievementofthemilestoneisnotdeemedprobable,theCompanyrecognizescompensationexpenseassociatedwithtime-acceleratedstockoptionsinitiallyoverthevestingperiodoftherespectivestockoption.Whendeemedprobableofachievement,theCompanyexpensestheremainingunrecognizedcompensationovertheimplicitserviceperiod.The

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YearsEndedDecember31,

2015 2014 2013 Expectedvolatility 46.1% 46.8% 46.3%Expectedterm(inyears) 6.04 6.10 6.50Risk-freeinterestrate 1.7% 1.8% 1.6%Expecteddividendyield —% —% —%

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

13.StockBenefitPlans(Continued)

Companyrecordedshare-basedcompensationrelatedtothesetime-acceleratedoptionsofaninsignificantamount,$1.2million,andaninsignificantamountduringtheyearsendedDecember31,2015,2014and2013,respectively.

TheCompanyalsograntstocertainemployeesperformance-basedoptionstopurchasesharesofcommonstock.Theseoptionsaresubjecttoperformance-basedmilestonevesting.DuringtheyearendedDecember31,2015,nosharesvestedasaresultofperformancemilestoneachievements.TheCompanyrecordedshare-basedcompensationrelatedtotheseperformance-basedoptionsofapproximately$0.2million,approximately$0.5million,andaninsignificantamount,respectively,duringtheyearsendedDecember31,2015,2014and2013.

ThefollowingtablesummarizesstockoptionactivityundertheCompany'sshare-basedcompensationplans,includingperformance-basedoptions:

ThetotalintrinsicvalueofoptionsexercisedduringtheyearsendedDecember31,2015,2014and2013wasapproximately$17.7million,$26.9millionandapproximately$19.7million,respectively.TheintrinsicvaluewascalculatedasthedifferencebetweenthefairvalueoftheCompany'scommonstockandtheexercisepriceoftheoptionissued.

F-60

SharesofCommonStockAttributabletoOptions

Weighted-AverageExercisePrice

Weighted-Average

ContractualLife

AggregateIntrinsicValue

(inyears) (inthousands) OutstandingatDecember31,2014 19,957,773 $ 10.07 6.00 $ 104,897Granted 3,518,950 $ 14.69 Exercised (2,005,330) $ 5.49 Cancelled (904,533) $ 13.13

OutstandingatDecember31,2015 20,566,860 $ 11.18 5.90 $ 38,279VestedorexpectedtovestatDecember31,2015 19,137,709 $ 11.11 5.78 $ 36,239ExercisableatDecember31,2015(1) 12,669,438 $ 10.35 4.82 $ 29,953

(1) Allstockoptionsgrantedunderthe2002EquityPlanandthe2005EquityPlancontainprovisionsallowingfortheearlyexerciseofsuchoptionsintorestrictedstock.TheexercisablesharesdisclosedaboverepresentthosethatwerevestedasofDecember31,2015.

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

13.StockBenefitPlans(Continued)

ThefollowingtablesetsforththeCompany'sunrecognizedshare-basedcompensationexpense,netofestimatedforfeitures,asofDecember31,2015,bytypeofawardandtheweighted-averageperiodoverwhichthatexpenseisexpectedtoberecognized:

Thetotalunrecognizedshare-basedcompensationcostwillbeadjustedforfuturechangesinestimatedforfeitures.

14.IncomeTaxes

Ingeneral,theCompanyhasnotrecordedaprovisionforfederalorstateincometaxesasithashadcumulativenetoperatinglossessinceinception.

AreconciliationofincometaxescomputedusingtheU.S.federalstatutoryratetothatreflectedinoperationsfollows(inthousands):

F-61

UnrecognizedExpense,NetofEstimatedForfeitures

Weighted-AverageRemainingRecognition

Period (inthousands) (inyears) Typeofaward: Stockoptionswithtime-basedvesting $ 31,254 2.60Restrictedstockawards 892 0.42Restrictedstockunits 7,768 3.46Time-acceleratedstockoptions(1) 71 —Performance-basedoptions(1) 3,655 —

(1) Theweighted-averageremainingrecognitionperiodcannotbedeterminedforperformance-basedortime-acceleratedoptionsduetothenatureofsuchawards,asdetailedabove.

YearsEndedDecember31, 2015 2014 2013 IncometaxbenefitusingU.S.federalstatutoryrate $ (48,507) $ (64,470) $ (92,756)Permanentdifferences 688 1,916 1,413Stateincometaxes,netoffederalbenefit (4,826) (5,632) (13,684)Stock-basedcompensation 3,824 3,584 3,830FairmarketvaluationofNoteHedgeWarrantsandConvertibleNoteHedges 3,711 — —Taxcredits (1,987) (2,652) (5,089)Expiringnetoperatinglossesandtaxcredits 194 3,590 —Effectofchangeinstatetaxrateondeferredtaxassetsanddeferredtaxliabilities (627) 5,490 1,057Changeinthevaluationallowance 47,587 58,185 105,186Other (57) (11) 43

$ — $ — $ —

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

14.IncomeTaxes(Continued)

ComponentsoftheCompany'sdeferredtaxassetsandliabilitiesareasfollows(inthousands):

ManagementoftheCompanyhasevaluatedthepositiveandnegativeevidencebearingupontherealizabilityofitsdeferredtaxassets.ManagementhasconsideredtheCompany'shistoryofoperatinglossesandconcluded,inaccordancewiththeapplicableaccountingstandards,thatitismorelikelythannotthattheCompanymaynotrealizethebenefitofitsdeferredtaxassets.Accordingly,thedeferredtaxassetshavebeenfullyreservedatDecember31,2015and2014.Managementreevaluatesthepositiveandnegativeevidenceonaquarterlybasis.

Thevaluationallowanceincreasedapproximately$40.7millionduringtheyearendedDecember31,2015,dueprimarilytoanincreaseintheCompany'staxcreditcarryforwards,capitalizedresearchanddevelopmentexpensesandshare-basedcompensationexpense.Additionally,thechangeinvaluationallowancenotedinthetableabovereflectstheimpactofadeferredtaxliabilitybeingrecordedthroughadditionalpaid-incapitalofapproximately$6.9millionfortheestablishmentofbasisdifferencesonthe2022Notes.Thevaluationallowanceincreasedapproximately$58.7millionduringtheyearendedDecember31,2014,dueprimarilytotheincreaseinthenetoperatinglosscarryforwardsandtaxcredits.

Subjecttothelimitationsdescribedbelow,atDecember31,2015and2014,theCompanyhasnetoperatinglosscarryforwardsofapproximately$857.9millionandapproximately$745.6million,respectively,tooffsetfuturefederaltaxableincome,whichexpirebeginningin2018continuingthrough2035.Thefederalnetoperatinglosscarryforwardsexcludeapproximately$61.6millionofdeductionsrelatedtotheexerciseofstockoptions.Thisamountrepresentsanexcesstaxbenefitandhasnotbeenincludedinthegrossdeferredtaxassetreflectedfornetoperatinglosses.Thisamountwillberecordedasanincreaseinadditionalpaidincapitalontheconsolidatedbalancesheetoncetheexcessbenefitsare"realized"inaccordancewithASC718,Compensation—StockCompensation("ASC718").AsofDecember31,2015and2014,theCompanyhadstatenetoperatinglosscarryforwardsofapproximately$566.7millionandapproximately$517.4million,respectively,tooffsetfuturestatetaxableincome,whichhavebeguntoexpireandwillcontinuetoexpirethrough2035.TheCompanyalsohadtaxcredit

F-62

YearsEndedDecember31, 2015 2014 Deferredtaxassets: Netoperatinglosscarryforwards $ 280,191 $ 279,123Taxcreditcarryforwards 33,996 32,186Capitalizedresearchanddevelopment 30,064 6,826Deferredrevenue 3,360 4,220Other 66,450 45,135

Totaldeferredtaxassets 414,061 367,490Deferredtaxliabilities: Basisdifferenceon2022Notes (5,877) —

Totaldeferredtaxliabilities (5,877) —Netdeferredtaxasset 408,184 367,490Valuationallowance (408,184) (367,490)

Netdeferredtaxasset $ — $ —

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

14.IncomeTaxes(Continued)

carryforwardsofapproximately$37.1millionandapproximately$35.1millionasofDecember31,2015and2014,respectively,tooffsetfuturefederalandstateincometaxes,whichexpireatvarioustimesthrough2035.

UtilizationofnetoperatinglosscarryforwardsandresearchanddevelopmentcreditcarryforwardsmaybesubjecttoasubstantialannuallimitationduetoownershipchangelimitationsthatcouldoccurinthefutureinaccordancewithSection382oftheInternalRevenueCodeof1986("IRCSection382")andwithSection383oftheInternalRevenueCodeof1986,aswellassimilarstateprovisions.Theseownershipchangesmaylimittheamountofnetoperatinglosscarryforwardsandresearchanddevelopmentcreditcarryforwardsthatcanbeutilizedannuallytooffsetfuturetaxableincomeandtaxes,respectively.Ingeneral,anownershipchange,asdefinedbyIRCSection382,resultsfromtransactionsincreasingtheownershipofcertainstockholdersorpublicgroupsinthestockofacorporationbymorethan50percentagepointsoverathree-yearperiod.TheCompanyhascompletedseveralfinancingssinceitsinceptionwhichmayresultinachangeincontrolasdefinedbyIRCSection382,orcouldresultinachangeincontrolinthefuture.

ThefollowingtablesummarizesthechangesintheCompany'sunrecognizedincometaxbenefitsfortheyearendedDecember31,2015(inthousands):

TheCompanyhadgrossunrecognizedtaxbenefitsofapproximately$17.6millionasofDecember31,2015.TheCompanydidnothaveanyunrecognizedtaxbenefitsasofDecember31,2014and2013.Oftheapproximately$17.6millionoftotalunrecognizedtaxbenefitsatDecember31,2015,noneoftheunrecognizedtaxpositionswould,ifrecognized,affecttheCompany'seffectivetaxrate,asthisitemonlyimpactstheCompany'sdeferredtaxaccounting.

TheCompanywillrecognizeinterestandpenalties,ifany,relatedtouncertaintaxpositionsinincometaxexpense.AsofDecember31,2015,2014and2013,theCompanyhadnoaccruedinterestorpenaltiesrelatedtouncertaintaxpositionsandnoamountshavebeenrecognizedintheCompany'sconsolidatedstatementsofoperations.

ThestatuteoflimitationsforassessmentbytheInternalRevenueService("IRS")andstatetaxauthoritiesisopenfortaxyearsendedDecember31,2014,2013,and2012,althoughcarryforwardattributesthatweregeneratedpriortotaxyear2012maystillbeadjusteduponexaminationbytheIRSorstatetaxauthoritiesiftheyeitherhavebeen,orwillbe,usedinafutureperiod.Therearecurrentlynofederalorstateincometaxauditsinprogress.

F-63

BalanceatJanuary1,2015 $ —Increasesbasedontaxpositionsrelatedtothecurrentperiod 17,614Increasesfortaxpositionsrelatedtopriorperiods 10,174Decreasesfortaxpositionsinpriorperiods (10,174)Decreasesforstatuteoflimitationexpiration —Decreasesforsettlementoftaxaudits —

BalanceatDecember31,2015 $ 17,614

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IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

15.DefinedContributionPlan

TheIronwoodPharmaceuticals,Inc.401(k)SavingsPlanisadefinedcontributionplanintheformofaqualified401(k)planinwhichsubstantiallyallemployeesareeligibletoparticipateuponemployment.SubjecttocertainIRSlimits,eligibleemployeesmayelecttocontributefrom1%to100%oftheircompensation.CompanycontributionstotheplanareatthesolediscretionoftheCompany'sboardofdirectors.Currently,theCompanyprovidesamatchingcontributionof75%oftheemployee'scontributions,upto$6,000annually.DuringtheyearsendedDecember31,2015,2014and2013,theCompanyrecordedapproximately$2.5million,approximately$2.6million,andapproximately$2.8millionofexpenserelatedtoits401(k)companymatch,respectively.

16.RelatedPartyTransactions

InSeptember2009,AllerganbecamearelatedpartywhentheCompanysoldtoAllergan2,083,333sharesoftheCompany'sconvertiblepreferredstock.InNovember2009,AlmirallbecamearelatedpartywhentheCompanysoldtoAlmirall681,819sharesoftheCompany'sconvertiblepreferredstock(Note4).ThesesharesofpreferredstockconvertedtotheCompany'sClassBcommonstockona1:1basisuponthecompletionoftheCompany'sIPOinFebruary2010.AmountsduetoandduefromAllerganandAlmirallarereflectedasrelatedpartyaccountspayableandrelatedpartyaccountsreceivable,respectively.Thesebalancesarereportednetofanybalancesduetoorfromtherelatedparty.AtDecember31,2015,theCompanydidnothaveanyrelatedpartyaccountsreceivableassociatedwithAlmirall,andapproximately$51.6millioninrelatedpartyaccountsreceivable,netofrelatedpartyaccountspayable,associatedwithAllergan.AtDecember31,2014,theCompanydidnothaveanyrelatedpartyaccountsreceivableassociatedwithAlmirallandapproximately$25.8millioninrelatedpartyaccountsreceivable,netofrelatedpartyaccountspayable,associatedwithAllergan.

17.StateGrants

IntheyearsendedDecember31,2012and2011,theCompanywasawardedanapproximately$1.7millionandapproximately$0.9milliontaxincentive,respectively,associatedwiththeLifeSciencesTaxIncentiveProgramfromtheMassachusettsLifeSciencesCenter.Theprogramwasestablishedin2008inordertoincentivizelifesciencescompaniestocreatenewsustainedjobsinMassachusetts.Jobsmustbemaintainedforatleastfiveyears,duringwhichtimethegrantproceedscanberecoveredbytheMassachusettsDepartmentofRevenue("DOR")iftheCompanydoesnotmeetandmaintainitsjobcreationcommitments.Theawardreceivedin2011wasrecognizedasotherincomeintheconsolidatedstatementofoperationsinthethirdquarterof2011,astheCompanybelievedithadsatisfieditsjobcreationcommitments.Fortheapproximately$1.7millioninfundsreceivedin2012,theCompanybelievedithadsatisfieditsjobcreationcommitmentsfortheyears2012and2013andrecognizedapproximately$0.7millionasotherincomeintheconsolidatedstatementofoperationsfortheyearendedDecember31,2014.Theremainingapproximately$1.0millionwasrecordedasothercurrentliabilitiesatDecember31,2014andwasreturnedtotheDORduringtheyearendedDecember31,2015,astheCompanydidnotsatisfythejobcreationcommitmentsundertheaward.

18.WorkforceReduction

OnJanuary8,2014,theCompanyannouncedaheadcountreductionofapproximately10%toalignitsworkforcewithitsstrategy.Thefield-basedsalesforceandmedicalscienceliaisonteamwereexcludedfromtheworkforcereduction.

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TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

18.WorkforceReduction(Continued)

DuringthethreemonthsendedMarch31,2014,theCompanysubstantiallycompletedtheimplementationofthisreductioninworkforceand,inaccordancewithASC420,ExitorDisposalCostObligations,recordedapproximately$4.3millionofcosts,includingemployeeseverance,benefitsandrelatedcosts.ThesecostswerereflectedintheConsolidatedStatementofOperationsasapproximately$3.0millioninresearchanddevelopmentexpensesandapproximately$1.2millioninselling,generalandadministrativeexpenses.TheCompanydidnotrecordanyadditionalchargesassociatedwiththisworkforcereductionduringtheyearsendedDecember31,2015and2014.Allpaymentsrelatedtothisreductioninworkforceweremadebytheendof2014.

19.SelectedQuarterlyFinancialData(Unaudited)

ThefollowingtablecontainsquarterlyfinancialinformationfortheyearsendedDecember31,2015and2014.TheCompanybelievesthatthefollowinginformationreflectsallnormalrecurringadjustmentsnecessaryforafairpresentationoftheinformationfortheperiodspresented.Theoperatingresultsforanyquarterarenotnecessarilyindicativeofresultsforanyfutureperiod.

F-65

First

Quarter SecondQuarter

ThirdQuarter

FourthQuarter TotalYear

(inthousands,exceptpersharedata) 2015 Collaborativearrangementsrevenue $ 28,932 $ 27,744 $ 39,572 $ 53,307 $ 149,555Totalcostandexpenses(1) 56,999 69,753 65,757 59,134 251,643Other(expense)income,net(2) (5,155) (6,011) (21,205) (8,210) (40,581)Netloss (33,222) (48,020) (47,390) (14,037) (142,669)Netlosspershare—basicanddiluted $ (0.24) $ (0.34) $ (0.33) $ (0.09) $ (1.00)

First

Quarter SecondQuarter

ThirdQuarter

FourthQuarter TotalYear

(inthousands,exceptpersharedata) 2014 Collaborativearrangementsrevenue(3) $ 14,605 $ 6,840 $ 16,918 $ 38,073 $ 76,436Totalcostandexpenses(4) 58,992 61,959 53,657 71,198 245,806Other(expense)income,net (5,239) (5,238) (5,249) (4,522) (20,248)Netloss (49,626) (60,357) (41,988) (37,647) (189,618)Netlosspershare—basicanddiluted $ (0.38) $ (0.44) $ (0.30) $ (0.27) $ (1.39)

(1) TotalcostsandexpensesforthesecondandthirdquarteroftheyearendedDecember31,2015includesapproximately$8.2millionand$9.4million,respectively,relatedtoawritedownofinventorytonetrealizablevalueandaccrualsforexcessnon-cancelableinventorypurchasecommitments(Note7).

(2) Other(expense)income,netforthesecondandthirdquartersoftheyearendedDecember31,2015includesapproximately$0.2millionand$11.4million,respectively,asalossonderivatives.Other(expense)income,netforthefourthquarteroftheyearendedDecember31,2015includesapproximately$1.6million,asagainonderivatives.Thegain(loss)onderivativesconsistsofthechangeinfairvalueoftheCompany'sConvertibleNoteHedgesandNoteHedgeWarrants,whicharerecordedasderivativeassetsandliabilities.TheConvertibleNoteHedgesandtheNoteHedge

TableofContents

IronwoodPharmaceuticals,Inc.

NotestoConsolidatedFinancialStatements(Continued)

19.SelectedQuarterlyFinancialData(Unaudited)(Continued)

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WarrantsarerecordedatfairvalueateachreportingperiodandchangesinfairvaluearerecordedintheCompany'sconsolidatedstatementsofoperations(Note5).

(3) CollaborativearrangementsrevenueforthefourthquarteroftheyearendedDecember31,2014includesapproximately$10.2millionrelatedtothereceiptofamilestonepaymentundertheCompany'slicenseagreementwithAstellasfortheenrollmentofthefirststudysubjectinaPhaseIIIstudyforlinaclotideinJapan,whichwasachievedinNovember2014(Note4).

(4) TotalcostsandexpensesforthesecondandfourthquarteroftheyearendedDecember31,2014includesapproximately$8.9millionand$11.4million,respectively,relatedtoawritedownofinventorytonetrealizablevalue(Note7).

TableofContents

ExhibitIndex

IncorporatedbyreferencehereinNumber Description Form Date

3.1 EleventhAmendedandRestatedCertificateofIncorporation AnnualReportonForm10-K(FileNo.001-34620)

March30,2010

3.2 FifthAmendedandRestatedBylaws AnnualReporton

Form10-K(FileNo.001-34620)

March30,2010

4.1 SpecimenClassAcommonstockcertificate Registration

StatementonFormS-1,asamended(FileNo.333-163275)

January20,2010

4.2 EighthAmendedandRestatedInvestors'RightsAgreement,datedasof

September1,2009,byandamongIronwoodPharmaceuticals,Inc.,theFoundersandtheInvestorsnamedtherein

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

November20,2009

4.3 Indenture,datedasofJanuary4,2013,byandbetweenIronwood

Pharmaceuticals,Inc.,asissueroftheNotes,andU.S.BankNationalAssociation,asinitialtrusteeoftheNotesandasOperatingBank(includingtheformoftheLinaclotidePhaRMASM11%Notesdue2024)

Form8-K(FileNo.001-34620)

January8,2013

4.4 Indenture,datedasofJune15,2015,byandbetweenIronwood

Pharmaceuticals,Inc.andU.S.BankNationalAssociation(includingtheformofthe2.25%ConvertibleSeniorNotedue2022)

Form8-K(FileNo.001-34620)

June15,2015

10.1# AmendedandRestated2002StockIncentivePlanandformagreements

thereunder RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

December23,2009

10.2# AmendedandRestated2005StockIncentivePlanandformagreements

thereunder RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

January29,2010

10.3# AmendedandRestated2010Employee,DirectorandConsultantEquity

IncentivePlan RegistrationStatementonFormS-8,asamended(FileNo.333-184396)

October12,2012

10.3.1# FormofStockOptionAgreementundertheAmendedandRestated2010

Employee,DirectorandConsultantEquityIncentivePlan AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.3.2# FormofNon-employeeDirectorRestrictedStockAgreementunderthe

AmendedandRestated2010Employee,DirectorandConsultantEquityIncentivePlan

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.3.3# FormofRestrictedStockUnitAgreementundertheAmendedand

Restated2010Employee,DirectorandConsultantEquityIncentivePlan AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

TableofContents

IncorporatedbyreferencehereinNumber Description Form Date

10.4# AmendedandRestated2010EmployeeStockPurchasePlan AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.5# ChangeofControlSeveranceBenefitPlan,asamendedand

restated QuarterlyReportonForm10-Q(FileNo.001-34620)

April29,2014

10.6# FormofExecutiveSeveranceAgreement AnnualReporton

Form10-K(FileNo.001-34620)

February18,2015

10.7# DirectorCompensationPlaneffectiveJanuary1,2014 AnnualReporton

Form10-K(FileNo.001-34620)

February7,2014

10.8# FormofIndemnificationAgreementwithDirectorsandOfficers RegistrationStatement

onFormS-1,asamended(FileNo.333-163275)

December23,2009

10.9# ConsultingAgreement,datedasofDecember16,2014,byand

betweenChristopherWalshandIronwoodPharmaceuticals,Inc. AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.10# ConsultingAgreement,datedDecember3,2014,byandbetween

LawrenceS.OlanoffandIronwoodPharmaceuticals,Inc. QuarterlyReportonForm10-Q(FileNo.001-34620)

May6,2015

10.11+ CollaborationAgreement,datedasofSeptember12,2007,as

amendedonNovember3,2009,byandbetweenForestLaboratories,Inc.andIronwoodPharmaceuticals,Inc.

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

February2,2010

10.11.1 AmendmentNo.2totheCollaborationAgreement,datedasof

January8,2013,byandbetweenForestLaboratories,Inc.andIronwoodPharmaceuticals,Inc.

AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.12+ LicenseAgreement,datedasofApril30,2009,byandbetween

AllerganPharmaceuticalsInternationalLtd.(formerlywithAlmirall,S.A.)andIronwoodPharmaceuticals,Inc.

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

February2,2010

10.12.1+ AmendmentNo.1toLicenseAgreement,datedasofJune11,

2013,byandbetweenAllerganPharmaceuticalsInternationalLtd.(formerlywithAlmirall,S.A.)andIronwoodPharmaceuticals,Inc.

QuarterlyReportonForm10-Q(FileNo.001-34620)

August8,2013

10.12.2++* AmendmenttotheLicenseAgreement,datedasofOctober26,

2015,byandbetweenAllerganPharmaceuticalsInternationalLtd.andIronwoodPharmaceuticals,Inc.

10.13++* NovationAgreement,datedasofOctober26,2015,byandamong

Almirall,S.A.,AllerganPharmaceuticalsInternationalLtd.andIronwoodPharmaceuticals,Inc.

TableofContents

IncorporatedbyreferencehereinNumber Description Form Date

10.14+ LicenseAgreement,datedasofNovember10,2009,byandamongAstellasPharmaInc.andIronwoodPharmaceuticals,Inc.

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

February2,2010

10.15+ CollaborationAgreement,datedasofOctober23,2012,byand

betweenAstraZenecaABandIronwoodPharmaceuticals,Inc. AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.16+ CommercialSupplyAgreement,datedasofJune23,2010,byand

amongPolyPeptideLaboratories,Inc.andPolypeptideLaboratories(SWEDEN)AB,ForestLaboratories,Inc.andIronwoodPharmaceuticals,Inc.

QuarterlyReportonForm10-Q(FileNo.001-34620)

August10,2010

10.17+ CommercialSupplyAgreement,datedasofMarch28,2011,byand

amongCordenPharmaColorado,Inc.(f/k/aRocheColoradoCorporation),IronwoodPharmaceuticals,Inc.andForestLaboratories,Inc.

QuarterlyReportonForm10-Q(FileNo.001-34620)

May13,2011

10.17.1+ AmendmentNo.3toCommercialSupplyAgreement,datedasof

November26,2013,byandbetweenCordenPharmaColorado,Inc.(f/k/aRocheColoradoCorporation),IronwoodPharmaceuticals,Inc.andForestLaboratories,Inc.

AnnualReportonForm10-K(FileNo.001-34620)

February7,2014

10.18 Leaseforfacilitiesat301BinneySt.,Cambridge,MA,datedasof

January12,2007,asamendedonApril9,2009,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

RegistrationStatementonFormS-1,asamended(FileNo.333-163275)

December23,2009

10.18.1 SecondAmendmenttoLeaseforfacilitiesat301BinneySt.,

Cambridge,MA,datedasofFebruary9,2010,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

March30,2010

10.18.2 ThirdAmendmenttoLeaseforfacilitiesat301BinneySt.,

Cambridge,MA,datedasofJuly1,2010,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

March30,2011

10.18.3 FourthAmendmenttoLeaseforfacilitiesat301BinneySt.,

Cambridge,MA,datedasofFebruary3,2011,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

March30,2011

10.18.4 FifthAmendmenttoLeaseforfacilitiesat301BinneySt.,

Cambridge,MA,datedasofOctober18,2011,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February29,2012

TableofContents

IncorporatedbyreferencehereinNumber Description Form Date

10.18.5 SixthAmendmenttoLeaseforfacilitiesat301BinneySt.,Cambridge,MA,datedasofJuly19,2012,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.18.6 SeventhAmendmenttoLeaseforfacilitiesat301BinneySt.,Cambridge,

MA,datedasofOctober30,2012,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February21,2013

10.18.7 EighthAmendmenttoLeaseforfacilitiesat301BinneySt.,Cambridge,

MA,datedasofJuly8,2014,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.18.8 NinthAmendmenttoLeaseforfacilitiesat301BinneySt.,Cambridge,

MA,datedasofOctober27,2014,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.18.9 TenthAmendmenttoLeaseforfacilitiesat301BinneySt.,Cambridge,

MA,datedasofJanuary21,2015,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.18.10 Sublease,datedasofJuly1,2014,byandbetweenBiogenIdecMAInc.

andIronwoodPharmaceuticals,Inc.toLeaseforfacilitiesat301BinneySt.,Cambridge,MA,asamended,byandbetweenIronwoodPharmaceuticals,Inc.andBMR-RogersStreetLLC

AnnualReportonForm10-K(FileNo.001-34620)

February18,2015

10.19 BaseCallOptionTransactionConfirmation,datedasofJune10,2015,

betweenIronwoodPharmaceuticals,Inc.andJPMorganChaseBank,NationalAssociation,LondonBranch

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.20 BaseCallOptionTransactionConfirmation,datedasofJune10,2015,

betweenIronwoodPharmaceuticals,Inc.andCreditSuisseCapitalLLC,throughitsagentCreditSuisseSecurities(USA)LLC

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.21 BaseWarrantsConfirmation,datedasofJune10,2015,betweenIronwood

Pharmaceuticals,Inc.andJPMorganChaseBank,NationalAssociation,LondonBranch

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.22 BaseWarrantsConfirmation,datedasofJune10,2015,betweenIronwood

Pharmaceuticals,Inc.andCreditSuisseCapitalLLC,throughitsagentCreditSuisseSecurities(USA)LLC

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.23 AdditionalCallOptionTransactionConfirmation,datedasofJune22,

2015,betweenIronwoodPharmaceuticals,Inc.andJPMorganChaseBank,NationalAssociation,LondonBranch

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

TableofContents

IncorporatedbyreferencehereinNumber Description Form Date

10.24 AdditionalCallOptionTransactionConfirmation,datedasofJune22,2015,betweenIronwoodPharmaceuticals,Inc.andCreditSuisseCapitalLLC,throughitsagentCreditSuisseSecurities(USA)LLC

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.25 AdditionalWarrantsConfirmation,datedasofJune22,2015,between

IronwoodPharmaceuticals,Inc.andJPMorganChaseBank,NationalAssociation,LondonBranch

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

10.26 AdditionalWarrantsConfirmation,datedasofJune22,2015,between

IronwoodPharmaceuticals,Inc.andCreditSuisseCapitalLLC,throughitsagentCreditSuisseSecurities(USA)LLC

QuarterlyReportonForm10-Q(FileNo.001-34620)

August7,2015

21.1* SubsidiariesofIronwoodPharmaceuticals,Inc. 23.1* ConsentofIndependentRegisteredPublicAccountingFirm 31.1* CertificationofChiefExecutiveOfficerpursuanttoRules13a-14or

15d-14oftheExchangeAct

31.2* CertificationofChiefFinancialOfficerpursuanttoRules13a-14or

15d-14oftheExchangeAct

32.1‡ CertificationofChiefExecutiveOfficerpursuanttoRules13a-14(b)or

15d-14(b)oftheExchangeActand18U.S.C.Section1350

32.2‡ CertificationofChiefFinancialOfficerpursuanttoRules13a-14(b)or

15d-14(b)oftheExchangeActand18U.S.C.Section1350

101.INS* XBRLInstanceDocument 101.SCH* XBRLTaxonomyExtensionSchemaDocument 101.CAL* XBRLTaxonomyExtensionCalculationLinkbaseDocument 101.LAB* XBRLTaxonomyExtensionLabelLinkbaseDatabase 101.PRE* XBRLTaxonomyExtensionPresentationLinkbaseDocument 101.DEF* XBRLTaxonomyExtensionDefinitionLinkbaseDocument

* Filedherewith.

‡ Furnishedherewith.

+ Confidentialtreatmentgrantedunder17C.F.R.§§200.80(b)(4)and230.406.Theconfidentialportionsofthisexhibithavebeenomittedandaremarkedaccordingly.TheconfidentialportionshavebeenprovidedseparatelytotheSECpursuanttotheconfidentialtreatmentrequest.

++ Confidentialtreatmentrequestedunder17C.F.R.§§200.80(b)(4)andRule24b-2.Theconfidentialportionsofthisexhibithavebeenomittedandaremarkedaccordingly.TheconfidentialportionshavebeenprovidedseparatelytotheSECpursuanttotheconfidentialtreatmentrequest.

# Managementcontractorcompensatoryplan,contract,orarrangement.

Exhibit 10.12.2

CONFIDENTIAL ExecutionVersion[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

AMENDMENT TO THE LICENSE AGREEMENTThisAmendmenttotheLicenseAgreement(the“Amendment”)ismadeasofOctober26,2015(the“AmendmentEffectiveDate”).Byandbetween,IRONWOOD PHARMACEUTICALS, INC. ,acompanyorganizedandexistingpursuanttotheLawsofDelaware,andhavingitsprincipalofficesat301BinneyStreet,Cambridge,MA02142,USA(hereinafter,referredtoas“Ironwood”)andALLERGAN PHARMACEUTICALS INTERNATIONAL LTD. ,acompanyregisteredinIreland,whoseregisteredofficeisatClonshaughBusiness&TechnologyPark,Coolock,Dublin,D17E400,Ireland(the“Partner”).WITNESSETHWHEREAS,Partner(astransfereefromAlmirall,S.A.,formerly,LaboratoriosAlmirall,S.A.(“Almirall”))andIronwoodarepartiestoaLicenseAgreement,datedApril30,2009,asamended(hereinafter,referredtoasthe“Agreement”),relatedtotheProduct(asdefinedintheAgreement).WHEREAS,Almirall,IronwoodandPartnerenteredintothatcertainNovationAgreementasofthedatehereof(the“NovationAgreement”),wherebyPartnerassumedcertainofAlmirall’sliabilitiesandobligationsandwasassignedcertainofAlmirall’srightsandbenefitsundertheAgreementinplaceofandtotheexclusionofAlmirall,ineachcase,asoftheEffectiveTime(asdefinedintheNovationAgreement)andonthetermsassetforthintheNovationAgreement.WHEREAS,thePartieshaveagreedtofurtheramendtheAgreementassetforthinthisAmendment.NOW,THEREFORE,thePartiesherebyagreeasfollows:ThisAmendmentshallbedeemedtotakeeffectimmediatelyfollowingtheEffectiveTime(asdefinedintheNovationAgreement)oftheNovationAgreement.Unlessotherwisestatedherein,allthedefinitionscontainedintheAgreementshallremainvalidandapplicabletothisAmendment.Article 1 — Definitions1.1.Sections1.26(DirectCosts),1.37(FullyAbsorbedCost),1.47(IndirectCosts)and1.115(TransferPrice)oftheAgreementareherebydeletedintheir

entiretyand

1

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

replacedwith“Reserved.”1.2.Section1.54(IronwoodKnow-How)oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

““IronwoodKnow-How”means(i)Know-HowIronwoodControlsasoftheEffectiveDate,includingKnow-HowthathasarisenorarisesundertheForestAgreement,orthatcomesintotheControlofIronwoodduringtheTerm(otherthanJointKnow-How)totheextentnecessaryorusefulintheTerritorytoDevelop,ManufactureorCommercializetheLicensedCompoundorProduct,includingwithoutlimitationanymethodofmakingtheLicensedCompoundorProduct,anycompositionorformulationoftheLicensedCompoundorProduct,oranymethodofusingoradministeringtheLicensedCompoundorProduct,and(ii)CollaborationKnow-How(otherthanJointKnow-How)thatisinvented,conceivedordevelopedbysolelyemployeesofIronwoodoritsAffiliates,orThirdPartiesactingonbehalfofIronwoodoritsAffiliates.”

1.3.ThepenultimatesentenceofSection1.69(NetSales)oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“NetSaleswillbedeterminedinaccordancewithGAAP.”Article 2 — Manufacturing and Supply2.1.Section2.1oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“LicensetoPartner.SubjecttothetermsandconditionsofthisAgreement,IronwoodherebygrantstoPartner,ontheEffectiveDate,anexclusivelicense,subjectonlytotherightsreservedtoIronwoodtotheextentnecessarytoperformitsobligationsorexerciseitsrightshereunder,withtherighttosublicenseasexpresslyprovidedinSection2.5,undertheIronwoodTechnologyandIronwood’sinterestintheJointTechnologyto(i)DeveloptheProductpursuanttotheDevelopmentPlan,(ii)CommercializetheProductintheFieldintheTerritoryand(iii)Manufacture(A)DevelopmentMaterials,(B)LicensedCompoundtobeincludedinaProductforCommercializationintheFieldintheTerritoryand(C)ProductforCommercializationintheFieldintheTerritory.Notwithstandingtheforegoing,IronwoodreservestherightundertheIronwoodTechnologytodevelopandmanufacturetheLicensedCompoundandProductinsideoroutsideoftheTerritory.”

2.2.ThefirstsentenceofSection2.4oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“RightofReference.IronwoodherebygrantstoPartnera“RightofReference,”asthattermisdefinedin21C.F.R.§314.3(b)andanyforeigncounterparttosuchregulationintheFieldintheTerritorytothedataincludedintheCollaborationTechnologytotheextentnecessaryorusefulto

2

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

Manufacture,DeveloporCommercializetheLicensedCompoundorProductsolelyforIBS-CorCC,andPartnerherebygrantstoIronwood(andIronwood’spartners)suchaRightofReferencetothedataincludedintheCollaborationTechnologytotheextentnecessaryorusefultoManufacture,DeveloporCommercializetheLicensedCompoundorProductintheFieldthroughouttheworldsolelyforIBS-CorCC,ineachcasesubjecttothetermsandconditionsofthisAgreement.”

2.3.Section3.3oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“ManufactureofProducts.Partnerwillberesponsible,atitssolecostandexpense,for(i)ManufactureofDevelopmentMaterialsinfinishedform,(ii)APIManufacturingand(iii)theManufactureofProductforCommercializationintheTerritory;provided,however,thatnothinginthisAgreementwillpreventPartnerfromcontractingwiththeThirdPartieslistedordescribedonSchedule3.3toperformanysuchManufacturingactivities.Partnerwillperform,andensurethattheThirdPartieslistedordescribedonSchedule3.3perform,allManufacturingactivitiesinaccordancewithGCP,GLPandGMP.”

2.4.TheattachedSchedule3.3isherebyappendedtotheAgreementasanewSchedule3.3.Article 3 — Royalties and Other Payments3.1.Section4.2oftheAgreementisherebyamendedbyaddingthefollowingimmediatelyfollowingSection4.2.6(andbeforethelastfourparagraphsofsuch

Section):

“4.2.7$[**]uponthefirsttimethatNetSalesachievedintheTerritory,inaggregate,exceedtheamountof€[**]inanyYear.”3.2.Section4.3.1oftheAgreementisherebydeletedinitsentiretyandreplacedwith“Reserved.”3.3.Section4.3.2oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“Royalty.PartnerwillpayIronwoodroyaltiesbasedontheaggregateannualNetSalesofProductssoldineachYearindicatedbyPartneroritsAffiliatesintheFieldintheTerritoryattheratessetforthinthetablebelowforsuchYear:

Year

Royalty Rate

2015-2017

[**]%

2018

[**]%

2019andthereafter

[**]% ”

3

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.3.4.Forclarity,theYear2015royaltyratesetforthinSection3.3hereofshallonlyapplytoaggregateNetSalesofProductssoldbyPartneroritsAffiliatesin

theFieldintheTerritoryonoraftertheAmendmentEffectiveDateandshallnotapplytoanyroyaltypaymentobligationsaccruedundertheAgreementpriortotheAmendmentEffectiveDate.AnysuchroyaltypaymentobligationsaccruedundertheAgreementpriortotheAmendmentEffectiveDateshallbesubjecttotheroyaltyratesunderSection4.3.2oftheAgreementineffectimmediatelypriortotheAmendmentEffectiveDate.

3.5.Section4.3.4(a)andSection4.3.4(b)oftheAgreementareherebydeletedintheirentiretyandreplacedwith“Reserved.”3.6.ThelastsentenceofSection4.3.4oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“InnoeventwillIronwoodbeobligatedto[**]paidpursuanttothisAgreement.”3.7.Section4.3.5oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“4.3.5CalculationofRoyaltiesatEndofYear.AttheendofeachYear,promptlyaftertheroyaltycalculationoftheroyaltyowedpursuanttoSection4.3.2forthefourthCalendarQuarteroftheprecedingYear,theroyaltiesowedtoIronwoodforsuchYear(the“AnnualRoyalties”)willbeequalto(i)[**](ii)[**].TheamountofroyaltiespaidwiththeQuarterlyReportprovidedpursuanttoSection4.4relatingtothefourthCalendarQuarterofeachYearwillbeequaltotheAnnualRoyaltiesforsuchYearlesstheroyaltiespaidforthefirstthreeCalendarQuartersofsuchYear.InnoeventwillIronwoodbeobligatedto[**]paidpursuanttothisAgreement.”

3.8.ThefirstsentenceofSection4.8oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“AllamountspayableandcalculationshereunderwillbeinUnitedStatesdollars.”Article 4 — Patent and Trademark Costs4.1.Section7.4.1oftheAgreementisherebyamendedbyappendingthefollowingtotheendofsuchsection:

“IrrespectiveofwhichPartyisresponsibleforpreparation,filing,prosecutingandmaintainingIronwoodPatentRightsandPartnerPatentRightspursuanttothisSection7.4.1,[**]thecostsforpreparation,filing,prosecutingandmaintainingIronwoodPatentRightsandPartnerPatentRightsintheTerritory.”

4

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.4.2.Section7.4.4oftheAgreementisherebyamendedbyappendingthefollowingtotheendofsuchsection:

“IrrespectiveofwhichPartyisresponsibleforobtaininganyPatentTermExtensionsorundertakinganyrelatedfilingsorotheractivitiespursuanttothisSection7.4.4,[**]thecostsofsuchfilingsandotheractivitiesintheTerritory.”

4.3.Section7.5.1oftheAgreementisherebyamendedbyappendingthefollowingtotheendofsuchsection:

“IrrespectiveofwhichPartyisresponsibleforfiling,prosecutingandmaintainingTrademarkspursuanttothisSection7.5.1,[**]thecostsforfiling,prosecutingandmaintainingsuchTrademarksintheTerritory.”

4.4.Section7.6.2oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“Enforcement.[**]willhavethefirstright(butnottheobligation),toenforce[**]underthisAgreementagainstsuchInfringement;provided,that(i)[**]willhavetherighttojoinsuchproceedingatanytimeatitsownexpense(subjecttotheprovisionsofSection7.6.3)andwilldosoatanytimeifitisdeemedtobeanecessarypartybythetribunalinwhichtheInfringementisbeingprosecuted,(ii)[**]willnot,without[**]’spriorwrittenconsent,takeanypositionwithrespectto,orcompromiseorsettle,anysuchInfringementinawaythatisreasonablylikelytoadverselyaffectthescope,validityorenforceabilityoftheapplicableTechnologyand(iii)[**]willadmittheinvalidityorunenforceabilityofanyCollaborationTechnologywhichCollaborationTechnologyisnecessaryorusefulintheTerritorytoManufacture,DeveloporCommercializetheLicensedCompoundorProductorotherTechnologyownedsolelybyorjointlywith[**]without[**]’spriorwrittenconsent.Intheevent[**]declinestoprosecutetheinfringingtechnologyortodefendsuchclaimwithin[**](orsuchshorterperiodasmayberequiredtocomplywithlegalorregulatorydeadlineswhichrelatetosuchinfringement)ofbecomingawarethereof,[**]willhavetherighttosoenforceordefend.IrrespectiveofwhichPartycontrolsanactionpursuanttothisSection,thePartieswillcollaborateinthechoiceofcounselwithrespecttosuchactionandthecommentsoftheotherPartywillnotbeunreasonablyrejectedwithrespecttostrategicdecisionsandtheirimplementationwithrespecttosuchaction.Infurtheranceoftheforegoing,thePartyresponsibleforanysuchactionwillkeeptheotherPartyreasonablyinformed,inpersonorbytelephone,regardingthestatusandcostsofsuchactionorproceedingpriortoandduringanysuchenforcement.NeitherPartywillsettleanysuchactionwithoutthewrittenconsentoftheotherParty,suchconsentnottobeunreasonablywithheld.NeitherPartywillincuranyliabilitytotheotherasaconsequenceofsuchlitigationoranyunfavorabledecisionresultingtherefrom,includinganydecisionholdinganyoftheIronwoodTechnology,

5

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

PartnerTechnology,orJointTechnologyinvalid,notinfringed,notmisappropriatedorunenforceable.”Article 5 — Non-CompeteSection5.2oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:

“5.2Restrictions.

5.2.1During[**],withoutthepriorwrittenconsentoftheotherParty,neitherPartynorsuchParty’sAffiliateswill[**].Further,during[**],neither[**]will[**].

5.2.2During[**],withoutthepriorwrittenconsentof[**],neither[**]will[**].

5.2.3IntheeventthateitherPartyoranyofitsAffiliates[**].

5.2.4After[**],andsubjecttoSections5.2.2and5.2.3,ifeitherParty[**].

5.2.5Forpurposeshereof,(x)[**],and(y)[**].

Article 6 — AddressesInrecognitionofthenovationoftheAgreementbyAlmiralltoPartnerpursuanttotheNovationAgreement,theaddressandcontactinformationforserviceordeliveryofnoticesandothercommunicationstoPartnerundertheAgreement,setforthinSection10.5.2oftheAgreement,shallbereplacedbythefollowing:

“ForPartner:

Address: AllerganPharmaceuticalsInternationalLtd.

ClonshaughBusiness&TechnologyPark

Coolock

Dublin,D17E400

IrelandFax: (+1)862-261-7922Attention: ManagingDirector

Withacopyto:

Address: Allerganplc

MorrisCorporateCenterIII400InterpaceParkwayParsippany,NJ07054UnitedStates

6

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

Fax: (+1)862-261-7922Attention: ChiefLegalOfficer”

Article 7 — [**][**].Article 8 — Extent of the Present AmendmentThisAmendmentconstitutesanintegralpartoftheAgreement.ItisexpresslyunderstoodthatthetermsandconditionsoftheAgreementshallremainfullyenforceableexceptwheredirectlyandexpresslymodifiedbythisAmendment.

[RemainderofPageIntentionallyLeftBlank]

7

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.INWITNESSWHEREOF,thePartieshaveexecutedthisAmendmenttobeeffectiveasoftheAmendmentEffectiveDate.IRONWOODPHARMACEUTICALS,INC.

ALLERGANPHARMACEUTICALSINTERNATIONALLTD.

By: /s/ThomasGraney

By: /s/AlexNesbittName: ThomasGraney Name: AlexNesbittTitle: CFO Title: Director

[SignaturePagetotheAmendmenttoLicenseAgreement]

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

SCHEDULE 3.3

APPROVEDTHIRDPARTYMANUFACTURERS

(i)[**];and(ii)[**].

Exhibit 10.13

CONFIDENTIAL

ExecutionVersion[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

DATE: OCTOBER 26, 2015

NOVATION AGREEMENT

Among

ALMIRALL, S.A.

ALLERGAN PHARMACEUTICALS INTERNATIONAL LTD.

IRONWOOD PHARMACEUTICALS, INC.

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.THIS NOVATION AGREEMENT (the“Agreement” )ismadeonthe26thdayofOctober2015BETWEEN :(1)ALMIRALL,S.A.,aSpanishcompany,whoseregisteredofficeisatRondaGeneralMitre,151,08022Barcelona,Spain(the“Transferor” );(2)IRONWOODPHARMACEUTICALS,INC.,aDelawarecompany,whoseregisteredofficeisat301BinneyStreet,Cambridge,MA02142USA(the

“Licensor” );and(3)ALLERGANPHARMACEUTICALSINTERNATIONALLTD.,acompanyregisteredinIreland,whoseregisteredofficeisatClonshaughBusiness&

TechnologyPark,Coolock,Dublin,D17E400,Ireland(the“Transferee” )(togetherthe“Parties” andeacha“Party” ).RECITALS(A)TheTransferorandtheLicensorarepartiestotheTransferredContracts(definedbelow).(B)TheTransferorandtheTransfereearepartiestotheMainAgreement(definedbelow).(C)EachofthePartiesiswillingtoagreethattheTransfereewillassumecertainoftheTransferor’sliabilitiesandobligations,andenjoycertainofthe

Transferor’srightsandbenefits,undertheTransferredContractsinplaceofandtotheexclusionoftheTransferor,ineachcase,asoftheEffectiveTimeandontheothertermssetforthinandsubjecttothisAgreement.

IT IS AGREED asfollows:1. INTERPRETATION1.1CapitalizedtermsusedbutnotdefinedinthisAgreementshallhavethemeaninggiventothemintheLicenseAgreement.InthisAgreement,including

therecitals,thefollowingwordsandexpressionsshallhavethefollowingmeanings:

“Effective Time ”meansthedateofthisAgreementfirstabovewritten.

“Liabilities and Obligations ”meansallliabilitiesandobligations(andallclaimsarisingfromthem)whatsoever,wheneverandhowsoeverarisinginconnectionwiththeperformanceornon-performanceofaTransferredContractorRetainedContract,asapplicable,includingallindemnificationobligationspursuanttoaTransferredContractorRetainedContract,asapplicable(ineachcasewhetherknownorunknown,performedorunperformed,dischargedorundischarged,actual,accrued,future,contingent,orprospective,andwhetherarisingincontract,tortorotherwise).

“License Agreement ”meanstheLicenseAgreementdatedApril30,2009betweentheTransferorandtheLicensorregardingtheProductandLicensedCompound,asamendedorsupplementedby(a)[**],(b)[**],(c)[**],(d)[**],(e)anAmendmentdatedJune11,2013betweentheTransferorandtheLicensor,(f)[**],(g)[**]and(h)anAmendmentdatedFebruary26,2014betweentheTransferorandtheLicensor.

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[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

“Main Agreement ”meansthatcertainAgreementrelatingtoLinaclotidebetweentheTransferorandtheTransfereedatedasofOctober26,2015pursuanttowhichTransferorandTransfereehaveagreedtotransfersubstantiallyallrightsrelatingtoLinaclotidefromTransferortoTransferee,includingtheTransferredContractsassetforthinthisAgreement.

“Manufacturing and Supply Agreement ”meanstheManufacturingandSupplyAgreementdatedApril13,2010betweentheTransferorandtheLicensor,asamendedbyanAmendmentdatedJuly1,2013betweentheTransferorandtheLicensor.

“Pharmacovigilance Agreement ”meansthePharmacovigilanceAgreementdatedSeptember30,2010betweentheTransferorandtheLicensor,asamendedandrestatedbytheAmendedandRestatedPharmacovigilanceAgreementdatedJune11,2014betweentheTransferorandtheLicensor.

“Quality Agreements ”means(a)theQualityAgreementdatedAugust7,2009betweentheTransferorandtheLicensor,and(b)theQualityAgreementdatedMay7,2014betweentheTransferorandtheLicensor.

“Retained Contracts ”means[**].

“Rights ”meansallrightsandbenefits(andallclaimsarisingfromthem)whatsoever,wheneverandhowsoeverarisinginconnectionwiththeperformanceornon-performanceofaTransferredContractorRetainedContract,asapplicable,includingallindemnificationrightspursuanttoaTransferredContractorRetainedContract,asapplicable(ineachcasewhetherknownorunknown,actual,accrued,future,contingentorprospective,andwhetherarisingincontract,tortorotherwise).

“[**]”means[**].

“Transferred Contracts ”meanseachof(a)theLicenseAgreement[**].Fortheavoidanceofdoubt,theTransferredContractswillnotincludeanyRetainedContract.

1.2HeadingsareusedinthisAgreementforconvenienceonlyandshallnotaffectitsinterpretation.1.3InthisAgreement,unlessotherwisestatedorthecontextotherwiserequires,referencestoclauses,sub-clausesandschedulesare,respectively,to

clauses,sub-clausesandschedulesinortothisAgreement.1.4Unlessthecontextotherwiserequires,wordsdenotingthesingularshallincludethepluralandviceversaandreferencestoanygendershallincludeall

othergenders.Referencestoanypersonincludebodiescorporate,unincorporatedassociations,partnerships,governments,governmentalagenciesanddepartments,statutorybodiesorotherentities,ineachcasewhetherornothavingaseparatelegalpersonality.

1.5InthisAgreement,unlessotherwisestatedorthecontextotherwiserequires,referencestotheword“including”willbeconstruedas“includingwithout

limitation.”2. NOVATION OF TRANSFERRED CONTRACTS2.1WitheffectonandaftertheEffectiveTime:

2

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

2.1.1theLicensorshallreleasetheTransferorfromtheobservance,performanceanddischargeoftheLiabilitiesandObligationsarisingfromperformanceornon-performanceoftheTransferredContractsbyoronbehalfofTransfereeonandaftertheEffectiveTime(the“Post-Effective Time Liabilities and Obligations ”);

2.1.2theTransfereeshallbeentitledtotheRightsarisingfromtheTransferredContractsonandaftertheEffectiveTimethatwouldhavebeen

RightsofTransferorintheabsenceofthisAgreement(the“Post-Effective Time Rights ”)andinplaceofandtotheexclusionoftheTransferor;

2.1.3theTransfereeundertakesandcovenantsasaseparateobligationwitheachoftheTransferorandtheLicensortoassume,observe,perform,

dischargeandbeboundbythePost-EffectiveTimeLiabilitiesandObligationsarisingfromtheperformanceornon-performanceoftheTransferredContractsinplaceofandtotheexclusionoftheTransferor;

2.1.4eachoftheLicensorandtheTransferoracceptstheobservance,performanceanddischargeofthePost-EffectiveTimeLiabilitiesand

Obligationsarisingfromtheperformanceornon-performanceoftheTransferredContractsandtheacceptanceofthePost-EffectiveTimeRightsbytheTransfereeinplaceofandtotheexclusionoftheTransferor;

2.1.5eachoftheLicensorandTransferorherebyreleasestheTransfereefromtheobservance,performanceanddischargeoftheLiabilitiesand

Obligationsarisingfromperformanceornon-performanceoftheTransferredContractsbyoronbehalfofTransferorpriortotheEffectiveTime;

2.1.6TransferorherebyreleasesLicensorfromtheobservance,performanceanddischargeoftheLiabilitiesandObligationsarisingfrom

performanceornon-performanceoftheTransferredContractsbyoronbehalfofLicensoronoraftertheEffectiveTime;and

2.1.7TransfereeherebyreleasesLicensorfromtheobservance,performanceanddischargeoftheLiabilitiesandObligationsarisingfromperformanceornon-performanceoftheTransferredContractsbyoronbehalfofLicensorpriortotheEffectiveTime;

andtheTransferredContractsshallbereadandconstruedaccordingly.AsofandfollowingtheEffectiveTime,theterm“Partner,”“Almirall,”orotherdefinedtermsreferencingtheTransferorintheTransferredContractswillbedeemedtorefertotheTransferee.Forclarity,(a)neithertheLicensornortheTransferorreleasestheotherPartyfromtheobservance,performanceordischargeoftheLiabilitiesandObligations(i)thatarisefromperformanceornon-performanceoftheTransferredContractsbyoronbehalfoftheotherPartypriortotheEffectiveTime,and(ii)thatarisefromperformanceornon-performanceoftheRetainedContractsbyoronbehalfoftheotherPartyatanytime,and(b)LicensorandTransferorshallcontinuetobeentitledtotheRightsthatarisefrom(I)theTransferredContractspriortotheEffectiveTime,and(II)theRetainedContractsatanytime,inthecaseof(I)and(II),totheexclusionofTransferee.Further,forclarity,TransfereeisnotassumingandwillnotbeliableforanyLiabilitiesandObligationsarisingfromperformanceor

3

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

non-performanceof(x)theTransferredContractsbyoronbehalfofTransferorpriortotheEffectiveTimeor(y)theRetainedContractsbyoronbehalfoftheTransferorortheLicensoratanytime.

2.2(a)EachoftheLicensorandtheTransfereeseverallyundertakesandcovenantswiththeTransferorthatitshallreleasetheTransferorandnotmakeany

claim,counterclaim,demand,actionorproceeding(includingarbitration)ofanynaturewhatsoever,orseektoenforceanyrightorinterest,againsttheTransferor,withrespecttothePost-EffectiveTimeLiabilitiesandObligations,and(b)theTransferorundertakesandcovenantswiththeLicensorthatitshallreleasetheLicensorandnotmakeanyclaim,counterclaim,demand,actionorproceeding(includingarbitration)ofanynaturewhatsoever,orseektoenforceanyrightorinterest,againsttheLicensor,withrespecttotheLiabilitiesandObligationsarisingfromperformanceornon-performanceoftheTransferredContractsand/ortheexploitationofanyRight(includingtoTechnologyorotherintellectualproperty)undertheTransferredContracts,ineachcase,onoraftertheEffectiveTime.TransferorundertakesandcovenantswiththeTransfereethatitshallreleasetheTransfereeandnotmakeanyclaim,counterclaim,demand,actionorproceeding(includingarbitration)ofanynaturewhatsoever,orseektoenforceanyrightorinterest,againsttheTransferee,withrespecttothePost-EffectiveTimeLiabilitiesandObligations.

2.3AsoftheEffectiveTime,eachoftheTransfereeandtheLicensormakestotheothertherepresentationsandwarrantiessetforthin[**]oftheLicense

Agreement(withrespecttothisAgreementandeachTransferredContract).AsoftheEffectiveTime,theTransfereemakestotheLicensortherepresentationsandwarrantiesin[**]oftheLicenseAgreement,andtheLicensormakestotheTransfereetherepresentationsandwarrantiesin[**]oftheLicenseAgreement.EachoftheTransfereeandtheLicensoradditionallyherebyrepresents,warrantsandcovenantstotheotherthatitwillcomplywithApplicableLawinconnectionwithexercisingitsrightsandcomplyingwithitsobligationsundertheTransferredContractsfromandaftertheEffectiveTime.

2.4TheLicensorandtheTransferoreachrepresentsandwarrantstotheTransfereethatthedocumentsattachedheretoasExhibitAaretrue,correctand

completecopiesoftheTransferredContracts.2.5Clauses2.1and2.2aresubjectinallrespectstoclause3below.3. SURVIVAL OF OBLIGATIONS3.1Notwithstandingtheprovisionsofclause2:

3.1.1Subjecttotheremainderofthisclause3.1.1,theTransferorundertakestotheLicensor,andtheLicensorundertakestotheTransferor,thatitshallobserveandperformthedutiesofconfidentialityandnon-disclosureitwouldhaveowedtotheotherundertheTransferredContractsonoraftertheEffectiveTimeintheabsenceofthisAgreement,includingpursuanttoSection5.1(Confidentiality)oftheLicenseAgreement.TheTransferorandtheLicensormayeachdisclosetotheTransfereeinformationinitspossessionrelatingtothesubjectmatteroftheTransferredContractstotheextentitisreasonablyrequiredbytheTransfereeinordertoexercisethePost-EffectiveTimeRightsordischargethePost-EffectiveTimeLiabilitiesandObligationsassumedbytheTransfereeunderclause2.Additionally,unlessotherwiseagreedtoinwriting,theParties

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[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

agreetokeepconfidentialtheexistenceandcontentsofthisAgreement;provided,thattherestrictionsofthisclause3.1.1willnotprohibit(a)anyPartyfrommakinganydisclosurethatisrequiredbyapplicablelaw,ruleorregulation,ortherequirementsofanationalsecuritiesexchangeoranothersimilarregulatorybody,or(b)theLicensororTransfereefromdisclosingtheexistenceandcontentsofthisAgreementtoanyThirdPartysupplier,partnerorlicenseeoftheLicensedCompoundortheProduct,subjecttotherestrictionsofSection5.7(CommunicationswithotherLinaclotidePartners)oftheLicenseAgreementandtoconfidentialityobligationsnolessrestrictivethanthosesetforthinSection5.1(Confidentiality)oftheLicenseAgreement.

3.1.2[**]oftheLicenseAgreementwillcontinuetoapplyto[**]foraperiodof[**].

3.1.3[**]oftheLicenseAgreementwillcontinuetoapplyto[**]foraperiodof[**].

3.1.4[**]oftheLicenseAgreementwillcontinuetoapplyto[**]foraperiodof[**].

3.1.5[**]oftheLicenseAgreementwillcontinuetoapplyto[**]solongastheLicenseAgreementremainsineffect,andthereafterinaccordance

with[**]oftheLicenseAgreement.

3.1.6WithrespecttoanyTechnologyorotherintellectualpropertywhichtheTransferorlicensedrightstoLicensorpriortotheEffectiveTimepursuanttoanyTransferredContract,thelicenseofsuchrightspursuanttosuchTransferredContractwillremainineffectwithrespecttotheTransferoruntilownershipofsuchTechnologyorotherintellectualproperty(includingallrights,title,andintereststherein)istransferredtotheTransferee.Withoutlimitingthegeneralityoftheforegoing,[**]oftheLicenseAgreementwillremainineffectwithrespectto[**]until[**].

3.1.7Forclarity,paymentobligationsaccruedbytheTransferorunderanyTransferredContractpriortotheEffectiveTimewillremainthe

responsibilityoftheTransferor,andtheTransferorwillmakesuchpaymentsdirectlytotheLicensorinaccordancewiththeTransferredContracts.TheTransferorwillprovidetotheLicensorafinalreportrequiredbySection4.4oftheLicenseAgreementwithin45daysaftertheendoftheCalendarQuarterduringwhichtheEffectiveTimeoccurs.Fortheavoidanceofdoubt,theTransfereeshallalsohaveanobligationtoprovideareportwithrespecttotheperiodaftertheEffectiveTimepursuanttoSection4.4oftheLicenseAgreementatsuchtime.Withoutlimitingthegeneralityoftheforegoing,[**]oftheLicenseAgreementwillremainbindingandineffectbetweentheTransferorandtheLicensorwithrespecttoTransferor’sactivitiesandobligationspriortotheEffectiveTimeuntil[**],andinthecaseof[**]oftheLicenseAgreement,[**]followingtheYearinwhichtheEffectiveTimeoccurs.

4. GENERAL4.1EachParty,fromtimetotimeonbeingrequiredtodosobyanotherParty,shall[**]doorprocurethedoingofallsuchactsand/orexecuteorprocure

theexecutionofallsuchdocumentsinsuchform

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[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.asthePartywhichhasrequireditmayreasonablyconsidernecessaryforgivingfulleffecttothisAgreementandsecuringtothatPartythefullbenefitof

therights,powersandremediesconferreduponthatPartyinthisAgreement.Withoutlimitingthegeneralityoftheforegoing,theTransferorwill(a)transfertotheTransfereeownershipofallTechnologyandotherintellectualproperty(includingallrights,title,andintereststherein)withrespecttowhichtheTransferorlicensedrightstotheLicensorpriortotheEffectiveTimepursuanttoanyTransferredContract,(b)transfertotheTransfereeallRegulatorySubmissions,otherregulatoryfilingsandrelatedmaterialrelatingtotheTransferredContracts,and(c)transfertotheTransfereeownershipofanyotherasset,record,andagreement(includingallrights,title,andintereststherein)heldbytheTransferorthatisreasonablyrequiredfortheTransfereetoassume,observe,perform,dischargeandbeboundbythePost-EffectiveTimeLiabilitiesandObligations,orisotherwiseprimarilyrelatedtotheTransferredContracts.

4.2InaccordancewithSection10.8oftheLicenseAgreement,LicensorherebygivesitswrittenconsenttoTransfereetosubcontract(but,forclarity,notto

sublicense)toTransferorobligationsundertheLicenseAgreementpursuanttoandonthetermssetforthintheTransitionalServicesAgreementbetweenTransfereeandTransferordatedOctober26,2015(the“Transitional Services Agreement ”)andtheTransitionalTollManufacturingAgreementbetweenTransfereeandTransferordatedOctober26,2015(the“Transitional Toll Manufacturing Agreement ”),true,accurateandcompletecopiesofwhich(otherthanfortheredactionofthefinancialterms)havebeenprovidedtoLicensorpriortotheEffectiveTime.TotheextentthattheTransferorprovidesgoodsorservicesto,orconductsworkonbehalfof,theTransfereepursuanttotheTransitionalServicesAgreementorTransitionalTollManufacturingAgreementonoraftertheEffectiveTime,andsubjecttotherightsandobligationsofLicensorandTransfereeundertheTransferredContractswithrespectthereto:

4.2.1Transfereeshallensurethatthegoodsorservicesprovided,ortheperformanceofsuchwork,byTransferorshallbeconsistentwiththe

TransferredContracts;

4.2.2TransfereeshallpromptlynotifyLicensorof(a)anyclaimofbreachundertheTransitionalServicesAgreementorTransitionalTollManufacturingAgreement,(b)theexecutionofanyamendmentoftheTransitionalServicesAgreementorTransitionalTollManufacturingAgreement,orthemakingofanymaterialchangestotheservicesprovidedthereunder,whetherbyamendmentorothermeans(subjecttotherightsandobligationsofLicensorandTransfereeundertheTransferredContractswithrespectthereto,including,forclarity,delegationspursuanttoSection10.8oftheLicenseAgreement),or(c)anynoticeofterminationoftheTransitionalServicesAgreementorTransitionalTollManufacturingAgreementpriortotheexpirationthereof;

4.2.3theTransferee(andnotLicensor)shallberesponsibleforallofthefinancialandotherobligationsfortheprovisionofsuchgoodsorservices

ortheperformanceofsuchworkbyTransferor;

6

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

4.2.4thesubcontractedanddelegatedobligationsunderthisclause4.2maynotbefurthersubcontractedordelegatedtoanythirdpartywithout

furthercompliancewithSection10.8oftheLicenseAgreementwithrespecttosuchsubcontractingordelegating;

4.2.5theTransfereeshallremainfullyresponsibletoLicensorfortheperformanceofthoseobligationsundertheTransferredContractswhichitdelegatestoTransferor(includingtheobligationsunderSection3.2.1andSection3.2.2oftheLicenseAgreement)andLicensormayproceeddirectlyagainstTransfereeforanybreachofTransferee’sobligationsundertheTransferredContractsthataredelegatedtoTransferor;and

4.2.6theTransferorwillpromptlydisclosetotheTransfereeallTechnologyandotherintellectualpropertyconceivedorreducedtopracticebythe

Transferorduringtheprovisionofsuchgoodsorservicesortheperformanceofsuchwork,andtheTransferorwillandherebydoesassigntotheTransfereeallrights,title,andinterestsinandtoallsuchTechnologyandotherintellectualproperty.

4.3Transferorherebycovenantsandagreesitshallnot,withoutLicensor’spriorwrittenconsent,[**].4.4(a)NotwithstandingSection12.5ofthe[**],the[**]shallnot,asoftheEffectiveTime,[**],and(b)[**]shallnot,asoftheEffectiveTime,[**].

NotwithstandingSection10.1ofthe[**]andSection15ofeachofthe[**],LicensorandTransferorherebyagreethatthe[**]and[**]shallterminateasoftheEffectiveTimewithnofurtherforceandeffect;providedthatSection10.2ofthe[**]shallcontinuetoapply.

4.5ThisAgreementmaybeexecutedinanynumberofcounterpartsandbythePartiesonseparatecounterparts.Eachcounterpartshallconstitutean

originalofthisAgreementbutallthecounterpartstogethershallconstituteoneandthesameAgreementandanyPartymayexecutethisAgreementbysigninganyoneormoreofsuchcounterparts.SignaturepagesofthisAgreementmaybeexchangedbyemail/pdforotherelectronicmeanswithoutaffectingthevaliditythereof.

4.6NovariationofthisAgreementshallbebindingonanyPartyunlessandtotheextentthatitisrecordedinawrittendocumentexecutedbythatParty.4.7NothinginthisAgreementisintendedtoconferonanythirdpartyanyrighttoenforceanytermofthisAgreement.4.8ThisAgreement,andanynon-contractualrightsorobligationsarisingoutoforinconnectionwithitoritssubjectmatter,shallbegovernedbyand

construedinaccordancewiththelawsoftheStateofNewYork,withoutreferencetoanyrulesofconflictoflaws,andthePartiesirrevocablyagreethat

anydisputewhichmayariseoutoforinconnectionwiththisAgreementoritssubjectmattershallberesolvedthrougharbitrationinaccordancewithSections10.1.2and10.1.3intheLicenseAgreement,whichforpurposeshereofaredeemedrepeatedinthisAgreement,mutatismutandis.

4.9AnoticeunderthisAgreementshallonlybeeffectiveifitisinwritinganddeliveredpersonallyorsentbycourier(reputableexpressinternational

courierifoverseas).

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[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

NoticegivenunderthisAgreementshallbe(a)inwritingandinEnglish,and(b)senttotherelevantPartyfortheattentionofthecontactandtotheaddressspecifiedbelow,orsuchotheraddress,orpersonasthatPartymaynotifytotheotherinaccordancewiththeprovisionsofthisclause4.9.

4.9.1Theaddressesforserviceofnoticesandcommunicationsare:

(a) Transferor: Almirall,S.A.

RondaGeneralMitre,151

08022Barcelona

Spain

Attention:HeadLegalDepartment (b) Transferee: AllerganPharmaceuticalsInternationalLtd.

ClonshaughBusiness&TechnologyPark

Coolock

Dublin,D17E400

Ireland

Attention:ManagingDirector

Withacopyto: Allerganplc

MorrisCorporateCenterIII

400InterpaceParkway

Parsippany,NJ07054

UnitedStates

Attention:ChiefLegalOfficer (c) Licensor: IronwoodPharmaceuticals,Inc.

301BinneyStreet

Cambridge,MA02142

UnitedStates

Attention:ChiefLegalOfficer

Withacopyto: Ropes&GrayLLP

800BoylstonStreet

Boston,MA02199

UnitedStates

Attention:MarcA.Rubenstein

APartymaychangeitsdetailsforserviceofnoticesasspecifiedinthisclause4.9bygivingnoticeinwritingtotheotherPartiesinaccordancewiththisclause4.9.

Thisclause4.9doesnotapplytotheserviceofanyproceedingsorotherdocumentsinanylegalactionorproceedings.

4.10EachPartyshallpayitsowncostsandexpensesincurredinconnectionwiththenegotiation,preparation,executionandimplementationofthis

Agreement.

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[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.4.11ThisAgreement(togetherwiththeTransferredContracts),embodiesalloftheunderstandingsandobligationsbetweenthePartiesconcerningthe

subjectmatterhereof,andsupersedes,replacesandcancelsanyandallpriorarrangements,agreementsorunderstandings,whetheroralorwritten,betweenthePartieswithrespecttothesubjectmatterhereof.Forclarity,theRetainedContractsshallnotbesuperseded,replacedorcanceledbytheforegoingsentenced.

[BalanceofPageisIntentionallyBlank-SignaturePageFollows]

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[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

INWITNESSofwhichthepartieshaveexecutedthisAgreementonthedatessetforth.ALMIRALL,S.A. ALLERGANPHARMACEUTICALS

INTERNATIONALLTD. By: /s/EduardoSanchiz

By: /s/AlexNesbittName: EduardoSanchiz Name: AlexNesbittTitle: ChiefExecutiveOfficer Title: DirectorDate:

Date:

IRONWOODPHARMACEUTICALS,INC.

By: /s/ThomasGraney

Name: T.Graney

Title: CFO

Date:

[NovationAgreementSignaturePage]

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

EXHIBIT A

TransferredContracts

(Seeattached.)

[**]=Portionsofthisexhibithavebeenomittedpursuanttoaconfidentialtreatmentrequest.AnunredactedversionofthisexhibithasbeenfiledseparatelywiththeCommission.

EXHIBIT A

TRANSFERREDCONTRACTSLicenseAgreement:

1.LicenseAgreementdatedApril30,2009betweentheTransferorandtheLicensorregardingtheProductandLicensedCompound

2.[**]

3.[**]

4.[**]

5.[**]

6.[**]

7.[**]

8.AmendmenttotheLicenseAgreementdatedJune11,2013betweentheTransferorandtheLicensor

9.[**]

10.[**]

11.AmendmenttotheLicenseAgreementdatedFebruary26,2014betweentheTransferorandtheLicensor[**]

12.[**]

13.[**]

Exhibit 21.1

List of Registrant’s SubsidiariesIronwoodPharmaceuticalsSecuritiesCorporation,incorporatedinMassachusetts,awhollyownedsubsidiary.IronwoodPharmaceuticalsGmbH,incorporatedinSwitzerland,awhollyownedsubsidiary.

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EXHIBIT23.1

CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM

WeconsenttotheincorporationbyreferenceinthefollowingRegistrationStatements(FormS-3Nos.333-179430and333-199885andFormS-8Nos.333-165227,333-165228,333-165229,333-165230,333-165231,333-184396,333-189339,333-189340,333-197874,333-197875,333-206227,and333-206228)ofIronwoodPharmaceuticals,Inc.andintherelatedProspectusesofourreportsdatedFebruary19,2016,withrespecttotheconsolidatedfinancialstatementsofIronwoodPharmaceuticals,Inc.,andtheeffectivenessofinternalcontroloverfinancialreportingofIronwoodPharmaceuticals,Inc.,includedinthisAnnualReport(Form10-K)fortheyearendedDecember31,2015.

Boston,MassachusettsFebruary19,2016

/s/Ernst&YoungLLP

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EXHIBIT23.1

CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM

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EXHIBIT31.1

CERTIFICATIONPURSUANTTORULE13a-14(a)UNDER

THESECURITIESEXCHANGEACTOF1934

I,PeterM.Hecht,certifythat:

1. IhavereviewedthisAnnualReportonForm10-KofIronwoodPharmaceuticals,Inc.(the"registrant");

2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;

3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;

4. Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:

a. Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;

b. Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;

c. Evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and

d. Disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecentfiscalquarter(theregistrant'sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and

5. Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeoftheregistrant'sboardofdirectors(orpersonsperformingtheequivalentfunctions):

a. Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and

b. Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.

Date:February19,2016

/s/PETERM.HECHT

PeterM.Hecht,Ph.D.ChiefExecutiveOfficer

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EXHIBIT31.1

CERTIFICATIONPURSUANTTORULE13a-14(a)UNDERTHESECURITIESEXCHANGEACTOF1934

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EXHIBIT31.2

CERTIFICATIONPURSUANTTORULE13a-14(a)UNDER

THESECURITIESEXCHANGEACTOF1934

I,ThomasGraney,certifythat:

1. IhavereviewedthisAnnualReportonForm10-KofIronwoodPharmaceuticals,Inc.(the"registrant");

2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;

3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;

4. Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:

a. Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;

b. Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;

c. Evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and

d. Disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecentfiscalquarter(theregistrant'sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and

5. Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeoftheregistrant'sboardofdirectors(orpersonsperformingtheequivalentfunctions):

a. Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and

b. Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.

Date:February19,2016

/s/THOMASGRANEY

ThomasGraneyChiefFinancialOfficer

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EXHIBIT31.2

CERTIFICATIONPURSUANTTORULE13a-14(a)UNDERTHESECURITIESEXCHANGEACTOF1934

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EXHIBIT32.1

CERTIFICATIONPURSUANTTO18U.S.C.SECTION1350,

ASADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002

InconnectionwiththeAnnualReportofIronwoodPharmaceuticals,Inc.(the"Company")onForm10-KfortheperiodendedDecember31,2015asfiledwiththeSecuritiesandExchangeCommissiononthedatehereof(the"Report"),I,PeterM.Hecht,ChiefExecutiveOfficeroftheCompany,certify,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,tomyknowledgethat:

(1) TheReportfullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934,asamended;and

(2) TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.

AsignedoriginalofthiswrittenstatementrequiredbySection906hasbeenprovidedtotheCompanyandwillberetainedbytheCompanyandfurnishedtotheSecuritiesandExchangeCommissionoritsstaffuponrequest.

/s/PETERM.HECHT

PeterM.Hecht,Ph.D.ChiefExecutiveOfficerFebruary19,2016

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EXHIBIT32.1

CERTIFICATIONPURSUANTTO18U.S.C.SECTION1350,ASADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002

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EXHIBIT32.2

CERTIFICATIONPURSUANTTO18U.S.C.SECTION1350,

ASADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002

InconnectionwiththeAnnualReportofIronwoodPharmaceuticals,Inc.(the"Company")onForm10-KfortheperiodendedDecember31,2015asfiledwiththeSecuritiesandExchangeCommissiononthedatehereof(the"Report"),I,ThomasGraney,ChiefFinancialOfficeroftheCompany,certify,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,tomyknowledgethat:

(1) TheReportfullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934,asamended;and

(2) TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.

AsignedoriginalofthiswrittenstatementrequiredbySection906hasbeenprovidedtotheCompanyandwillberetainedbytheCompanyandfurnishedtotheSecuritiesandExchangeCommissionoritsstaffuponrequest.

/s/THOMASGRANEY

ThomasGraneyChiefFinancialOfficerFebruary19,2016

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EXHIBIT32.2

CERTIFICATIONPURSUANTTO18U.S.C.SECTION1350,ASADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002