CAMBRIDGE, Mass.--(BUSINESS WIRE)--Ironwood Pharmaceuticals, Inc. (“Ironwood”) (Nasdaq: IRWD), a GI-focused healthcare company, today announced that it intends to offer, subject to market and other conditions, $165 million aggregate principal amount of convertible senior unsecured notes that will mature on June 15, 2024 (the “2024 Notes”) and $165 million aggregate principal amount of convertible senior unsecured notes that will mature on June 15, 2026 (the “2026 Notes” and, together with the 2024 Notes, the “Notes”). The Notes will be offered and sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). Ironwood also expects to grant the initial purchaser of the Notes an option to purchase, within a 13-day period from, and including, the date of original issuance of the Notes up to an additional $25 million aggregate principal amount of the 2024 Notes and $25 million aggregate principal amount of the 2026 Notes.
The Notes will bear cash interest, payable on June 15 and December 15 of each year, beginning on December 15, 2019. The Notes will not be redeemable prior to maturity. The Notes will be convertible, only during certain periods and subject to certain circumstances, into cash, shares of Ironwood Class A common stock (“Ironwood common stock”), or a combination of cash and shares of Ironwood common stock, at Ironwood’s election. Final terms of the Notes, including interest rate, conversion rate, conversion price, and certain other terms of the offering, will be determined at the time of pricing.
Ironwood intends to use the net proceeds, together with cash on hand, to redeem all of its outstanding 8.375% Notes due 2026, repurchase approximately $185 million aggregate principal amount of its outstanding 2.25% Convertible Notes due 2022 (“the existing convertible notes”), pay the cost of the capped call transactions (described below) and, to the extent additional proceeds are available, fund general corporate purposes. Ironwood currently expects to settle the remaining principal amount of the existing convertible notes in cash at maturity.
In connection with the pricing of the Notes, Ironwood expects to enter into capped call transactions with certain financial institutions (the “option counterparties”). The capped call transactions are expected generally to reduce the potential dilution to Ironwood common stock upon any conversion of the Notes and/or offset any cash payments Ironwood is required to make in excess of the principal amount of converted Notes in the event that the market price per share of Ironwood common stock, as measured under the terms of the capped call transactions, exceeds the strike price of the capped call transactions. The strike price initially corresponds to the conversion price of the Notes and is subject to certain adjustments under the terms of the capped call transactions. If, however, the market price of Ironwood common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions, there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, upon conversion of the Notes to the extent that such market price exceeds the cap price of the capped call transactions. If the initial purchaser exercises its option to purchase additional Notes, Ironwood expects to enter into additional capped call transactions with the option counterparties.
Ironwood expects that the option counterparties, or their respective affiliates, will initially hedge the capped call transactions by purchasing shares of Ironwood common stock and/or entering into other hedging transactions, including (without limitation) derivative transactions with respect to Ironwood common stock, in each case, concurrently with or shortly after the pricing of the Notes. This activity could impact the market price of Ironwood common stock or the Notes at that time. In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by buying or selling shares in Ironwood common stock and/or entering into or unwinding various hedging positions, including (without limitation) derivative transactions with respect to Ironwood common stock and/or by purchasing or selling Ironwood common stock or other securities of Ironwood's in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of Notes). This activity could also impact the market price of Ironwood common stock or the Notes, which could affect the ability of holders to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of the Notes, it could affect the number of shares of Ironwood common stock and value of the consideration that holders will receive upon conversion of the Notes.
In connection with the existing convertible notes, Ironwood entered into convertible note hedge transactions and warrant transactions (the “existing call spread transactions”) with certain financial institutions (the “existing option counterparties”). In connection with Ironwood’s intended repurchase of the existing convertible notes, Ironwood expects to enter into agreements with the existing option counterparties to terminate a portion of such existing call spread transactions, in each case, in a notional amount corresponding to the amount of such existing convertible notes repurchased. In connection with any termination of existing call spread transactions and the related unwinding of the existing hedge position of the existing option counterparties with respect to such transactions, such existing option counterparties and/or their respective affiliates may sell shares of Ironwood common stock in secondary market transactions, and/or enter into or unwind various derivative transactions with respect to Ironwood common stock. This activity could decrease (or reduce the size of any increase in) the market price of Ironwood common stock at that time and it could decrease (or reduce the size of any increase in) the market value of the notes. In connection with these transactions, Ironwood may make or receive payments in amounts that depend on the market value of Ironwood common stock during the unwind period.
Ironwood also expects that, in connection with the repurchase of a portion of its existing convertible notes, those holders of the existing convertible notes that sell their existing convertible notes to Ironwood may enter into or unwind various derivatives with respect to Ironwood common stock and/or purchase or sell shares of Ironwood common stock in the market to hedge their exposure in connection with these transactions. In particular, Ironwood expects that many holders of the existing convertible notes employ a convertible arbitrage strategy with respect to the existing convertible notes and have a short position with respect to Ironwood common stock that they would close, through purchases of Ironwood common stock, in connection with Ironwood’s repurchase of their existing convertible notes. This activity could increase (or reduce the size of any decrease in) the market price of Ironwood common stock or the notes at that time, and could result in a higher effective conversion price for the Notes.
The offer and sale of the Notes are not being registered under the Securities Act, or any state securities laws. The Notes may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act and any applicable state securities laws.
This news release does not constitute an offer to sell or a solicitation of an offer to buy the securities described herein, nor shall there be any sale of these securities, in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the laws of such jurisdiction.
About Ironwood Pharmaceuticals
Ironwood Pharmaceuticals (Nasdaq: IRWD) is a GI-focused healthcare company dedicated to creating medicines that make a difference for patients living with GI diseases. We discovered, developed and are commercializing linaclotide, the U.S. branded prescription market leader for adults with irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC).
We are also advancing two late-stage GI product candidates: IW-3718 is a gastric retentive formulation of a bile acid sequestrant being developed for the potential treatment of persistent gastroesophageal reflux disease, and MD-7246 is a delayed-release formulation of linaclotide that is being evaluated as an oral, intestinal, non-opioid, pain-relieving agent for patients suffering from abdominal pain associated certain GI diseases.
Ironwood was founded in 1998 and is headquartered in Cambridge, Mass. Any trademarks referred to in this press release are the property of their respective owners. All rights reserved.
This press release contains forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, including, but not limited to, statements about Ironwood’s intention to commence an offering of Notes and enter into the capped call transactions, the expected terms of the offering, the Notes and the capped call transactions, and Ironwood’s anticipated use of proceeds and settlement of the existing convertible notes at maturity. Each forward‐looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statement. Applicable risks and uncertainties include, but are not limited to, those related to whether or not Ironwood will be able to consummate the offering and the capped call transactions on the timeline or with the terms anticipated, if at all. In addition, Ironwood’s management would retain broad discretion with respect to the allocation of the net proceeds of this offering and its future use of cash, including with respect to the settlement of the existing convertible notes. Applicable risks also include those that are listed under the heading "Risk Factors" and elsewhere in Ironwood's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and in Ironwood’s subsequent SEC filings. These forward-looking statements (except as otherwise noted) speak only as of the date of this press release and Ironwood undertakes no obligation to update these forward-looking statements.