IRONWOOD PHARMACEUTICALS INC Fair Value Disclosure
5. Fair Value of Financial Instruments
The tables below present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2025 and 2024 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability.
The Company’s investment portfolio may include fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company apply other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. In addition, model processes are used to assess interest rate impact and develop prepayment scenarios. These models take into consideration relevant credit information, perceived market movements, sector news and economic events. The inputs into these models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data. The Company validates the prices provided by its third-party pricing services by obtaining market values from other pricing sources and analyzing pricing data in certain instances. The Company periodically invests in certain reverse repurchase agreements, which are collateralized by Government Securities and Obligations for an amount not less than 102% of their principal amount. The Company does not record an asset or liability for the collateral as the Company is not permitted to sell or re-pledge the collateral. The collateral has at least the prevailing credit rating of U.S. Government Treasuries and Agencies. The Company uses a third-party custodian to manage the exchange of funds and ensure the collateral received is maintained at 102% of the reverse repurchase agreements principal amount on a daily basis.
The following tables present the assets the Company has measured at fair value on a recurring basis (in thousands):
Fair Value Measurements at Reporting Date Using | ||||||||||||
| | Quoted Prices in | | Significant Other | | Significant | ||||||
Active Markets for | Observable | Unobservable | ||||||||||
December 31, | Identical Assets | Inputs | Inputs | |||||||||
2025 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets: | ||||||||||||
Cash and cash equivalents: | ||||||||||||
Money market funds | $ | 164,907 | $ | 164,907 | $ | — | $ | — | ||||
U.S. Treasury securities | 11,479 | — | 11,479 | — | ||||||||
Commercial paper | 7,880 | — | 7,880 | — | ||||||||
Total assets measured at fair value | $ | 184,266 | $ | 164,907 | $ | 19,359 | $ | — | ||||
Fair Value Measurements at Reporting Date Using | ||||||||||||
| | Quoted Prices in | | Significant Other | | Significant | ||||||
Active Markets for | Observable | Unobservable | ||||||||||
December 31, | Identical Assets | Inputs | Inputs | |||||||||
2024 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets: | ||||||||||||
Cash and cash equivalents: | ||||||||||||
Money market funds | $ | 36,010 | $ | 36,010 | $ | — | $ | — | ||||
U.S. Treasury securities | 11,044 | — | 11,044 | — | ||||||||
Commercial paper | 7,928 | — | 7,928 | — | ||||||||
Total assets measured at fair value | $ | 54,982 | $ | 36,010 | $ | 18,972 | $ | — | ||||
Cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued research and development costs, accrued expenses and other current liabilities and current portion of operating lease obligations as of December 31, 2025 and 2024 are carried at amounts that approximate fair value due to their short-term maturities.
Convertible Senior Notes
In August 2019, the Company issued $200.0 million aggregate principal amount of its 2026 Convertible Notes (Note 9). The fair value of the 2026 Convertible Notes, which differs from their carrying value, is influenced by interest rates, the price of the Company’s Class A Common Stock and the volatility thereof, and the prices for the 2026 Convertible Notes observed in market trading, which are Level 2 inputs.
The estimated fair value of the 2026 Convertible Notes was $189.3 million and $186.6 million as of December 31, 2025 and 2024, respectively.
Capped Calls with Respect to 2026 Convertible Notes
In connection with the issuance of the 2026 Convertible Notes, the Company entered into the Capped Calls (as defined in Note 9, Debt, below) with certain financial institutions. The Capped Calls cover 14,933,740 shares of Class A Common Stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of Class A Common Stock that initially underlie the 2026 Convertible Notes. The Capped Calls have an initial strike price of approximately $13.39 per share, which corresponds to the initial conversion price of the 2026 Convertible Notes, and have a cap price of approximately $17.05 per share (Note 9). The strike price and cap price are subject to anti-dilution adjustments generally similar to those applicable to the 2026 Convertible Notes. These instruments meet the conditions outlined in ASC 815, to be classified in stockholders’ equity and are not subsequently remeasured as long as the conditions for equity classification continue to be met (Note 9).
Revolving Credit Agreement
Outstanding borrowings under the revolving credit facility (Note 9) are carried at amounts that approximate fair value based on their nature, terms, credit spreads, and variable interest rates, which are Level 3 inputs.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 18, 2022 | |
| 2020 | Feb 17, 2021 | |
| 2019 | Feb 13, 2020 | |
| 2018 | Feb 25, 2019 | |
| 2017 | Feb 22, 2018 | |
| 2016 | Feb 22, 2017 | |
| 2015 | Feb 19, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.