IRONWOOD PHARMACEUTICALS INC
For the period ended Dec 31, 2023. Filed Feb 16, 2024.
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FY2023 · Filed Feb 16, 2024
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Ironwood Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ironwood Pharmaceuticals, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 16, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for convertible senior notes in 2022 due to the adoption of ASU 2020-06.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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| | | Collaboration Agreement for North America with AbbVie Inc. |
| Description of the Matter | | Revenue recognized from the Collaboration Agreement for North America with AbbVie Inc. (together with its affiliates, or “AbbVie”) was $430.5 million for the sale of LINZESS in the U.S. for the year ended December 31, 2023. As discussed in Note 5 to the consolidated financial statements, the Company generates the majority of its revenue from a collaboration arrangement with AbbVie related to linaclotide (LINZESS). The Company records its share of the net profits or net losses from the sale of LINZESS in the U.S., less commercial expenses, and presents the |
| settlement payments to and from AbbVie as collaboration expense or collaborative arrangements revenue, as applicable.Auditing revenue recognition under the AbbVie collaboration was especially challenging and required significant auditor judgment because the Company relies on AbbVie for timely and accurate information regarding net profits realized from the sale of LINZESS in the U.S. Management uses the information provided by AbbVie, which includes net revenues from sales of LINZESS in the U.S. and related costs, to record its collaboration revenue. Certain of such information received from AbbVie are determined by AbbVie by using estimates and judgments, which could be adjusted based on actual results in the future. | ||
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over its collaboration revenue process, including controls over the Company’s evaluation of the completeness and accuracy of information related to net sales of LINZESS provided from AbbVie. Our audit procedures included, among others, inspecting reported information provided by AbbVie to the Company related to the net profits realized from the sale of LINZESS in the U.S. We analyzed the gross sales and certain adjustments to arrive at net sales, cost of goods sold, and related costs contributing to Ironwood’s share of net profits and compared current period results to historical trends. We also tested settlement payments received by the Company throughout the year. In addition, we confirmed directly with AbbVie the collaborative arrangement revenue for the year ended December 31, 2023 related to the sale of LINZESS in the U.S. as well as the amounts due to the Company as of December 31, 2023. |
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/s/Ernst & Young LLP
We have served as the Company’s auditor since 1998.
Boston, Massachusetts
February 16, 2024
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