UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 000-30319 INNOVIVA, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 94-3265960 (State or Other Jurisdiction of ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 000-30319 INNOVIVA, INC. (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporation or Or ...

[PART I](index=4&type=section&id=PART%20I) Innoviva is a diversified holding company with a portfolio of royalties and innovative healthcare assets [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Innoviva manages GSK-partnered respiratory royalties and an expanded portfolio of commercial and development-stage healthcare products [Overview](index=4&type=section&id=Overview) Innoviva is a diversified holding company with GSK-partnered respiratory royalties and commercial products from recent acquisitions - Innoviva, Inc. is a diversified holding company with a portfolio of royalties and other healthcare assets[17](index=17&type=chunk) - Key royalty assets include RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA® from a collaboration with GSK[17](index=17&type=chunk) - Recent acquisitions of Entasis Therapeutics (July 11, 2022) and La Jolla Pharmaceutical (August 22, 2022) expanded the portfolio to include commercial products GIAPREZA® and XERAVA®, and development pipeline assets like SUL-DUR[18](index=18&type=chunk) [Our Strategy](index=4&type=section&id=Our%20Strategy) Innoviva's strategy maximizes GSK royalty value, optimizes operations, and diversifies through opportunistic healthcare acquisitions - Corporate strategy focuses on increasing stockholder value by maximizing respiratory assets partnered with GSK, optimizing operations, and augmenting capital allocation[20](index=20&type=chunk) - Diversifying royalty management business through opportunistic acquisitions of promising healthcare companies and assets[20](index=20&type=chunk) - Recent acquisitions of Entasis and La Jolla created a robust hospital and infectious disease platform[20](index=20&type=chunk) [Our Royalty Product Portfolio](index=4&type=section&id=Our%20Royalty%20Product%20Portfolio) Innoviva's royalty portfolio includes GSK-partnered respiratory products RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®, facing competition - Innoviva's royalty portfolio includes RELVAR®/BREO® ELLIPTA® (FF/VI) and ANORO® ELLIPTA® (UMEC/VI), developed under a LABA Collaboration Agreement with GSK[21](index=21&type=chunk) GSK Royalty Rates | Product | Royalty Rate (Annual Global Net Sales) | | :------ | :------------------------------------ | | RELVAR®/BREO® ELLIPTA® | **15%** on first **$3.0 billion**, **5%** above **$3.0 billion** | | ANORO® ELLIPTA® | Tiered, ranging from **6.5% to 10%** | - The market for these respiratory products is highly competitive, facing numerous approved bronchodilator drugs, combination therapies, and generic versions of established products like Advair® and Symbicort®[23](index=23&type=chunk)[25](index=25&type=chunk) [Our Integrated Hospital / Infectious Disease Business](index=7&type=section&id=Our%20Integrated%20Hospital%20%2F%20Infectious%20Disease%20Business) Innoviva's hospital/infectious disease business features commercial products GIAPREZA® and XERAVA®, with regulatory exclusivity - Commercial products include GIAPREZA® (angiotensin II) for septic or other distributive shock and XERAVA® (eravacycline) for complicated intra-abdominal infections (cIAI)[18](index=18&type=chunk)[27](index=27&type=chunk) - GIAPREZA® was approved based on the ATHOS-3 study, showing a **70%** MAP response in treated patients vs. **23%** in placebo, with a median time to response of ~5 minutes[29](index=29&type=chunk)[33](index=33&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - XERAVA® was approved based on IGNITE1 and IGNITE4 studies, demonstrating noninferiority in clinical cure rates for cIAI, including against resistant pathogens[43](index=43&type=chunk)[47](index=47&type=chunk)[52](index=52&type=chunk) - Both GIAPREZA® and XERAVA® are New Chemical Entities (NCEs) and have Qualified Infectious Disease Product (QIDP) designation, granting additional market exclusivity[59](index=59&type=chunk)[62](index=62&type=chunk)[124](index=124&type=chunk) [Our Product Candidates](index=15&type=section&id=Our%20Product%20Candidates) Innoviva's pipeline includes SUL-DUR for carbapenem-resistant infections and zoliflodacin for gonorrhea, both with QIDP designation - SUL-DUR is a novel IV antibiotic for carbapenem-resistant Acinetobacter infections, with positive Phase 3 ATTACK trial data showing **19.0%** mortality vs. **32.3%** for colistin and significantly lower nephrotoxicity (**13.2% vs. 37.6%**)[65](index=65&type=chunk)[72](index=72&type=chunk) - SUL-DUR received FDA Fast Track and QIDP designation in September 2017 and FDA Priority Review for its NDA in November 2022, with a target PDUFA date of May 29, 2023[72](index=72&type=chunk)[78](index=78&type=chunk)[124](index=124&type=chunk) - Zoliflodacin is a potential single oral dose cure for uncomplicated gonorrhea, targeting drug-resistant strains, and is currently in a global Phase 3 registration trial with anticipated enrollment completion in 2023[87](index=87&type=chunk)[95](index=95&type=chunk) - Zoliflodacin has QIDP designation and aims to address the global public health threat of gonorrhea, with **82.4 million** cases worldwide in 2020[90](index=90&type=chunk)[124](index=124&type=chunk) [Manufacturing](index=21&type=section&id=Manufacturing) Innoviva relies on third-party manufacturers for commercial products and candidates, adhering to cGMPs and regulatory standards - Manufacturing of RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA® is performed by GSK[103](index=103&type=chunk) - Innoviva relies on third-party manufacturers for GIAPREZA and XERAVA, and for raw materials, drug substance, and finished drug product for preclinical and clinical trials of product candidates[104](index=104&type=chunk)[105](index=105&type=chunk) - Contract manufacturers must comply with FDA's current Good Manufacturing Practices (cGMPs) and other applicable laws and regulations[104](index=104&type=chunk) [Government Regulation](index=21&type=section&id=Government%20Regulation) Products are subject to extensive U.S. and international regulations covering development, approval, manufacturing, marketing, and reimbursement - Extensive government regulation in the U.S. and other countries covers all stages of product life, from research and development to marketing and post-approval monitoring[106](index=106&type=chunk)[107](index=107&type=chunk)[134](index=134&type=chunk) - The U.S. FDA approval process involves preclinical tests, IND submission, three phases of clinical trials (Phase 1, 2, 3), NDA submission, and facility inspections for cGMP compliance[110](index=110&type=chunk)[111](index=111&type=chunk)[118](index=118&type=chunk)[121](index=121&type=chunk) - Expedited review programs like Fast Track and QIDP (Qualified Infectious Disease Product) designation can accelerate development and review, and provide additional market exclusivity (e.g., XERAVA and SUL-DUR have QIDP)[123](index=123&type=chunk)[124](index=124&type=chunk)[128](index=128&type=chunk) - Post-approval, products are subject to ongoing review, cGMP compliance, adverse event reporting, and strict regulation of promotional claims, with potential for restrictions or withdrawal if issues arise[130](index=130&type=chunk)[131](index=131&type=chunk) - Reimbursement by third-party payors (government and commercial) is critical for commercial success, with increasing challenges to prices and cost-effectiveness, especially for hospital-administered drugs[140](index=140&type=chunk)[141](index=141&type=chunk) - Healthcare laws such as the federal Anti-Kickback Statute, False Claims Act, and HIPAA regulate business activities and marketing practices, with non-compliance leading to significant penalties[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) [Intellectual Property](index=30&type=section&id=Intellectual%20Property) Innoviva protects its product candidates and technologies through patents, trademarks, and trade secrets, with patents extending to 2044 - Commercial success depends on obtaining and maintaining proprietary or intellectual property protection for product candidates, core technologies, and know-how[159](index=159&type=chunk) Intellectual Property Portfolio Summary (as of Feb 15, 2023) | Description | United States (Issued/Pending) | Expiration (US) | Foreign (Issued/Pending) | Expiration (Foreign) | | :---------- | :----------------------------- | :-------------- | :----------------------- | :------------------- | | GIAPREZA | 15 / 10 | 2029 - 2044 | 15 / 25 | 2034 - 2044 | | XERAVA | 4 / 2 | 2029 - 2037 | 17 / 15 | 2029 - 2037 | | Other (Tetracycline) | 5 / 1 | 2030 - 2037 | 32 / 17 | 2033 - 2037 | | Durlobactam | 4 / 2 (incl. PCT) | 2033 - 2043 | 107 / 6 | 2033 - 2043 | | Zoliflodacin| 7 / 0 | 2029 - 2035 | 74 / 2 | 2029 - 2035 | - The company also relies on trademarks, trade secrets, and confidentiality agreements to protect unpatented know-how and maintain its competitive position[169](index=169&type=chunk) [Our Strategic Partnership with Sarissa Capital](index=31&type=section&id=Our%20Strategic%20Partnership%20with%20Sarissa%20Capital) Innoviva partners with Sarissa Capital for acquisition strategy and invests in ISP Fund LP for healthcare equity securities - Innoviva entered a Strategic Advisory Agreement with Sarissa Capital (a related party) to assist in developing and executing its acquisition strategy[170](index=170&type=chunk)[171](index=171&type=chunk) - Innoviva Strategic Partners LLC, a wholly-owned subsidiary, became a limited partner in ISP Fund LP, contributing **$300.0 million** initially and an additional **$110.0 million** in 2022 for investments in healthcare, pharmaceutical, and biotechnology equity securities[172](index=172&type=chunk)[173](index=173&type=chunk) [Human Capital](index=32&type=section&id=Human%20Capital) Innoviva had **101** employees as of December 31, 2022, focusing on recruitment, retention, and DEI through competitive compensation - As of December 31, 2022, Innoviva had **101 full-time employees**, none represented by a labor union[174](index=174&type=chunk) - Key human capital objectives include identifying, recruiting, integrating, retaining, and motivating employees through competitive compensation, benefits, and a focus on Diversity, Equity, and Inclusion (DEI)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) Executive Officers (as of Feb 28, 2023) | Name | Age | Positions Held | | :------------ | :-- | :---------------------- | | Pavel Raifeld | 39 | Chief Executive Officer | | Marianne Zhen | 54 | Chief Accounting Officer| - Innoviva is a diversified holding company with a portfolio of royalties and innovative healthcare assets[17](index=17&type=chunk)[18](index=18&type=chunk)[400](index=400&type=chunk) - The corporate strategy is focused on increasing stockholder value by maximizing respiratory assets, optimizing operations, augmenting capital allocation, and diversifying through opportunistic acquisitions in the healthcare industry[20](index=20&type=chunk) GSK Royalty Structure | Product | Royalty Rate (Annual Global Net Sales) | | :------ | :------------------------------------ | | RELVAR®/BREO® ELLIPTA® | **15%** on first **$3.0 billion**, **5%** above **$3.0 billion** | | ANORO® ELLIPTA® | Tiered, ranging from **6.5% to 10%** | [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) Innoviva faces risks from competition, partner dependence, development uncertainties, acquisitions, debt, and regulatory/economic factors - Significant risks include substantial competition for RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®, dependence on GSK's commercialization efforts, and potential for reduced royalty revenue due to generic competition or pricing pressures[182](index=182&type=chunk)[184](index=184&type=chunk)[188](index=188&type=chunk)[191](index=191&type=chunk) - Product development risks involve clinical trial failures, delays in regulatory approval, undesirable side effects, and challenges in achieving market acceptance for new product candidates[182](index=182&type=chunk)[230](index=230&type=chunk)[242](index=242&type=chunk)[273](index=273&type=chunk) - Operational risks include difficulties integrating acquired businesses (Entasis, La Jolla), reliance on third parties for clinical trials and manufacturing, and the potential for unsuccessful acquisitions or strategic collaborations[182](index=182&type=chunk)[251](index=251&type=chunk)[257](index=257&type=chunk)[261](index=261&type=chunk)[291](index=291&type=chunk)[293](index=293&type=chunk)[296](index=296&type=chunk) - Financial risks include significant debt obligations (**$549.7 million** as of Dec 31, 2022), potential limitations on net operating loss carryforwards, and the volatility of the company's stock price[182](index=182&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk)[209](index=209&type=chunk)[377](index=377&type=chunk) - Other risks encompass intellectual property protection challenges, compliance with complex government regulations (including healthcare laws and potential price controls), and adverse impacts from global economic and political conditions[182](index=182&type=chunk)[298](index=298&type=chunk)[322](index=322&type=chunk)[335](index=335&type=chunk)[341](index=341&type=chunk)[348](index=348&type=chunk)[355](index=355&type=chunk)[381](index=381&type=chunk) [Item 1B. Unresolved Staff Comments](index=69&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments are reported [Item 2. Properties](index=69&type=section&id=Item%202.%20Properties) Innoviva maintains headquarters in California and office/lab facilities in Massachusetts, sufficient for current operations - Headquarters: **2,111 sq ft** office space in Burlingame, CA, lease expires December 2023[384](index=384&type=chunk) - Other material property: ~**20,000 sq ft** office and laboratory facility in Waltham, MA, lease expires December 2025[384](index=384&type=chunk) - Current facilities are sufficient, and additional space is expected to be available on commercially reasonable terms for expansion[384](index=384&type=chunk) [Item 3. Legal Proceedings](index=69&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from Note 13, 'Commitments and Contingencies,' in financial statements - Legal proceedings information is incorporated by reference from Note 13, 'Commitments and Contingencies,' in the financial statements[385](index=385&type=chunk) [Item 4. Mine Safety Disclosures](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Innoviva, Inc [PART II](index=70&type=section&id=PART%20II) This section covers market information for common equity, related stockholder matters, and issuer purchases of equity securities [Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=70&type=section&id=Item%205.%20Market%20for%20the%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Innoviva's common stock trades on Nasdaq, with a **$100.0 million** share repurchase program initiated in October 2022 - Innoviva's common stock trades on Nasdaq under the symbol "INVA" since January 11, 2016 (formerly "THRX")[388](index=388&type=chunk) - As of February 14, 2023, there were **64 stockholders** of record[389](index=389&type=chunk) Share Repurchases (Q4 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------------- | :------------------------------- | :--------------------------- | | December 1, 2022 to Dec 31, 2022 | 647,394 | $13.13 | | Total | 647,394 | $13.13 | - The Board authorized a **$100.0 million** share repurchase program on October 31, 2022[390](index=390&type=chunk) - Subsequent to December 31, 2022, and through February 24, 2023, an additional **1,522,947 shares** were repurchased for approximately **$19.2 million**[406](index=406&type=chunk) [Item 6. [Reserved]](index=71&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=72&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Innoviva's 2022 financial performance reflects strategic acquisitions, divestitures, and operational shifts, impacting net income and cash flows [Management Overview](index=72&type=section&id=Management%20Overview) Innoviva is a diversified holding company managing royalties and healthcare assets, expanded by recent acquisitions - Innoviva is a diversified holding company with a portfolio of royalties and innovative healthcare assets, including GSK-partnered respiratory products (RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®)[399](index=399&type=chunk) - Acquisitions of Entasis (July 11, 2022) and La Jolla (August 22, 2022) added commercial products GIAPREZA® and XERAVA®, and a development pipeline (SUL-DUR)[400](index=400&type=chunk) - The company's structure is tailored to managing respiratory assets, commercializing marketed products, developing product candidates, and optimizing capital allocation[401](index=401&type=chunk) [Financial Highlights](index=72&type=section&id=Financial%20Highlights) Innoviva's 2022 net income decreased to **$213.9 million** due to investment losses and lower royalties, partially offset by a TRC sale gain Net Income Attributable to Innoviva Stockholders | Year | Net Income (in millions) | | :--- | :----------------------- | | 2022 | $213.9 | | 2021 | $265.9 | - The decrease in net income was mainly driven by a **$153.2 million** unrealized loss on equity and long-term investments and decreased royalty revenues[402](index=402&type=chunk) - A gain of **$266.7 million** was recognized from the sale of TRC, partially offsetting the decreases[402](index=402&type=chunk) - Cash and cash equivalents totaled **$291.0 million** as of December 31, 2022[402](index=402&type=chunk) [Corporate Updates](index=72&type=section&id=Corporate%20Updates) Innoviva completed acquisitions of Entasis and La Jolla, divested TRC ownership, and initiated a **$100.0 million** share repurchase program - Acquired Entasis Therapeutics Holdings Inc. on July 11, 2022, for **$42.4 million**, adding an infectious disease R&D platform and lead asset SUL-DUR[403](index=403&type=chunk) - Sold 15% ownership interest in TRC to Royalty Pharma for **$282.0 million** on July 20, 2022, including a potential **$50.0 million** sales-based milestone[404](index=404&type=chunk) - Acquired La Jolla Pharmaceutical Company on August 22, 2022, for **$150.5 million**, adding commercial products GIAPREZA® and XERAVA®[405](index=405&type=chunk) - Authorized a new **$100.0 million** share repurchase program on October 31, 2022[406](index=406&type=chunk) [Clinical Updates](index=73&type=section&id=Clinical%20Updates) SUL-DUR received FDA Priority Review, and zoliflodacin's Phase 3 trial enrollment is on track for 2023 completion - FDA granted Priority Review for SUL-DUR's NDA on November 30, 2022, for carbapenem-resistant Acinetobacter infections, with a target PDUFA date of May 29, 2023[409](index=409&type=chunk) - Positive safety and efficacy findings from the pivotal Phase 3 ATTACK trial for SUL-DUR were reinforced at the Infectious Disease Society of America annual meeting in October 2022[409](index=409&type=chunk) - Enrollment in the Phase 3 registrational trial for zoliflodacin (for uncomplicated gonorrhea) is on track, with study completion anticipated in 2023[409](index=409&type=chunk) [Collaborative Arrangements with GSK](index=73&type=section&id=Collaborative%20Arrangements%20with%20GSK) Innoviva receives tiered royalties from GSK on RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA® sales - LABA Collaboration Agreement with GSK (November 2002) developed once-daily products for COPD and asthma, including RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®[408](index=408&type=chunk)[409](index=409&type=chunk) - Innoviva receives tiered royalties from GSK on sales of RELVAR®/BREO® ELLIPTA® (**15%** on first **$3.0 billion**, **5%** above **$3.0 billion**) and ANORO® ELLIPTA® (**6.5% to 10%**)[411](index=411&type=chunk) - Milestone fees of **$220.0 million** paid to GSK in 2014 are capitalized and amortized over the products' estimated useful lives[410](index=410&type=chunk) - Innoviva no longer receives royalties on TRELEGY® ELLIPTA® sales after selling its TRC ownership interest in July 2022[411](index=411&type=chunk) [Strategic Partnership with Sarissa Capital](index=74&type=section&id=Strategic%20Partnership%20with%20Sarissa%20Capital) Innoviva partners with Sarissa Capital for acquisition strategy and invests in ISP Fund LP for healthcare equity securities - Strategic Advisory Agreement with Sarissa Capital (a related party) provides strategic services for Innoviva's acquisition strategy, free of charge[412](index=412&type=chunk) - Innoviva Strategic Partners LLC contributed **$300.0 million** initially and an additional **$110.0 million** in March 2022 to ISP Fund LP, managed by Sarissa Capital, for investments in healthcare, pharmaceutical, and biotechnology equity securities[413](index=413&type=chunk)[414](index=414&type=chunk) - Capital contributions to ISP Fund LP are subject to a 36-month lock-up period from the contribution date[413](index=413&type=chunk)[414](index=414&type=chunk) [Critical Accounting Policies and Estimates](index=74&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Innoviva's financial reporting relies on critical estimates for business combinations, revenue recognition, impairment, and investment valuation - Business combinations use the acquisition method, recording acquired assets and liabilities at fair value, requiring significant estimates for identifiable intangible assets, future revenues, cash flows, and discount rates[416](index=416&type=chunk)[417](index=417&type=chunk) - Royalty revenue is recognized when earned, net of amortization of capitalized fees, based on partner's net sales reports and estimates for rebates/returns[418](index=418&type=chunk) - Product sales revenue is recognized when customers obtain control, net of variable consideration (chargebacks, discounts, returns, rebates) estimated using the expected-value method[420](index=420&type=chunk)[421](index=421&type=chunk) - Capitalized fees are reviewed for impairment by comparing carrying amount to expected undiscounted future cash flows, requiring estimates of useful life and sales projections[423](index=423&type=chunk) - Equity and long-term investments, particularly Level 3 instruments like InCarda preferred stock/warrants and Gate convertible notes, are measured at fair value using models like Black-Scholes-Merton or Monte Carlo simulation, based on significant unobservable inputs[428](index=428&type=chunk)[429](index=429&type=chunk) [Factors Affecting Comparability](index=77&type=section&id=Factors%20Affecting%20Comparability) Financial comparability is impacted by ASU 2020-06 adoption, Entasis consolidation, TRC sale, and La Jolla acquisition - Comparability of financial results is affected by the adoption of ASU 2020-06 (effective Jan 1, 2022)[431](index=431&type=chunk) - Consolidation of Entasis (Feb 17, 2022) and purchase of remaining noncontrolling interest (July 11, 2022) impact comparability[431](index=431&type=chunk) - Sale of 15% ownership interest in TRC (July 20, 2022) and acquisition of La Jolla (August 22, 2022) also affect comparability[431](index=431&type=chunk) [Results of Operations](index=78&type=section&id=Results%20of%20Operations) Innoviva's 2022 results show decreased royalty revenue, increased R&D and SG&A expenses, a TRC sale gain, and unrealized investment losses Total Net Royalty Revenue (2022 vs. 2021) | Year | Total Net Royalty Revenue (in thousands) | | :--- | :--------------------------------------- | | 2022 | $311,645 | | 2021 | $391,866 | | Change | $(80,221) | - Decrease in royalty revenue primarily due to the sale of TRC ownership interest and pricing pressures/foreign currency changes on RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®[433](index=433&type=chunk) Net Product Sales (2022) | Product | Net Sales (in thousands) | | :-------- | :----------------------- | | GIAPREZA® | $14,200 | | XERAVA® | $5,500 | | Total | $19,700 | Key Expenses (2022 vs. 2021) | Expense Category | 2022 (in thousands) | 2021 (in thousands) | Change ($) (in thousands) | | :------------------------------- | :------------------ | :------------------ | :------------------------ | | Research and development | $41,432 | $576 | $40,856 | | Selling, general and administrative | $63,538 | $16,187 | $47,351 | - Recognized a net gain of **$266.7 million** from the sale of TRC in July 2022[446](index=446&type=chunk) - Recorded **$152.5 million** in unrealized losses on Armata investments in 2022, compared to **$78.7 million** in unrealized gains in 2021[448](index=448&type=chunk) [Liquidity and Capital Resources](index=82&type=section&id=Liquidity%20and%20Capital%20Resources) Innoviva maintains **$291.0 million** in cash, with **$549.7 million** in convertible notes, and sufficient liquidity for near-term needs - Cash and cash equivalents totaled **$291.0 million** as of December 31, 2022[457](index=457&type=chunk) - Generated **$325.5 million** in gross royalty revenues and **$19.7 million** in net product sales in 2022[457](index=457&type=chunk) - Total outstanding convertible notes were **$549.7 million** as of December 31, 2022, with **$96.2 million** (2023 Notes) fully paid in January 2023[458](index=458&type=chunk) - Management believes current cash and cash equivalents are sufficient for debt service, operating needs, and share repurchase program for at least the next 12 months[461](index=461&type=chunk) Cash Flows Summary (2022 vs. 2021) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | | :--------------------------- | :------------------ | :------------------ | | Operating activities | $201,726 | $363,813 | | Investing activities | $(56,634) | $43,722 | | Financing activities | $(55,568) | $(452,497) | - Net income attributable to Innoviva stockholders decreased to **$213.9 million** in 2022 from **$265.9 million** in 2021[402](index=402&type=chunk) - The decrease in net income was mainly driven by a **$153.2 million** unrealized loss on equity and long-term investments and decreased royalty revenue, partially offset by a **$266.7 million** gain from the sale of TRC[402](index=402&type=chunk) - Innoviva completed the acquisition of Entasis Therapeutics on July 11, 2022, for **$42.4 million** cash, and La Jolla Pharmaceutical Company on August 22, 2022, for **$150.5 million** net cash[403](index=403&type=chunk)[405](index=405&type=chunk) - The company sold its 15% ownership interest in Theravance Respiratory Company, LLC (TRC) to Royalty Pharma for **$282.0 million** on July 20, 2022, including a potential **$50.0 million** sales-based milestone[404](index=404&type=chunk) Key Financial Data (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change ($) (in thousands) | Change (%) | | :----------------------------------------- | :------------------ | :------------------ | :------------------------ | :--------- | | Total net royalty revenue | $311,645 | $391,866 | $(80,221) | (20)% | | Net product sales | $19,694 | $0 | $19,694 | * | | Research and development expenses | $41,432 | $576 | $40,856 | * | | Selling, general and administrative expenses | $63,538 | $16,187 | $47,351 | **293%** | | Net income attributable to Innoviva stockholders | $213,921 | $265,854 | $(51,933) | (20)% | | Cash and cash equivalents (period end) | $291,049 | $201,525 | $89,524 | **44%** | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Innoviva faces market risks from investment fair value changes, inflation, and foreign exchange rates, though direct foreign exchange impact is minimal - Debt bears fixed interest rates, so cash flows on debt obligations are not subject to variability from interest rate changes[476](index=476&type=chunk) - Exposed to changes in the fair value of equity and debt securities investments, which could result in material gains or losses[477](index=477&type=chunk) - Inflationary factors (e.g., raw material costs, interest rates) could adversely affect operating results, though no material impact has been observed to date[478](index=478&type=chunk) - Foreign exchange risk is considered insubstantial as most cash, investments, and vendor relationships are U.S. dollar-denominated, despite indirect exposure from international royalty revenue[479](index=479&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=85&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Innoviva's audited consolidated financial statements, including balance sheets, income statements, and cash flow statements, with notes - Includes Consolidated Balance Sheets as of December 31, 2022 and 2021[480](index=480&type=chunk) - Includes Consolidated Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows for the three years ended December 31, 2022[480](index=480&type=chunk) - Contains Notes to Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firms[480](index=480&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=134&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure are reported [Item 9A. Controls and Procedures](index=134&type=section&id=Item%209A.%20Controls%20and%20Procedures) Innoviva's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, excluding recent acquisitions - Disclosure controls and procedures were evaluated as effective at reasonable assurance levels as of December 31, 2022[805](index=805&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[807](index=807&type=chunk) - Management's assessment excluded internal controls of recently acquired La Jolla and Entasis, which constituted approximately **33%** of total assets and **6%** of total revenue[808](index=808&type=chunk) - Deloitte & Touche LLP, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of internal control over financial reporting[809](index=809&type=chunk)[815](index=815&type=chunk) - The company is integrating acquired operations into its internal control environment and implementing necessary changes, including for inventory management, R&D, and product sales[811](index=811&type=chunk) [Item 9B. Other Information](index=137&type=section&id=Item%209B.%20Other%20Information) No other information is reported under this item [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=137&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to Innoviva, Inc [PART III](index=138&type=section&id=PART%20III) This section incorporates information on directors, executive compensation, security ownership, related transactions, and accountant fees by reference [Item 10. Directors, Executive Officers and Corporate Governance](index=138&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[825](index=825&type=chunk) [Item 11. Executive Compensation](index=138&type=section&id=Item%2011.%20Executive%20Compensation) Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[826](index=826&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=138&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details security ownership and equity compensation plans, including outstanding options and shares available for future issuance Securities Authorized for Issuance under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Number of securities to be issued upon exercise of outstanding options and vesting of outstanding restricted stock units and restricted stock awards (a) | Weighted‑average exercise price of outstanding options (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------ | :--------------------------------------------------------- | :---------------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 1,465,720 | $15.56 | 3,999,265 | - Column (a) includes 947,906 shares from outstanding options and 517,814 shares from outstanding RSUs and RSAs[828](index=828&type=chunk) - Column (c) includes **160,995 shares** of common stock available under the Employee Stock Purchase Plan[828](index=828&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=138&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[829](index=829&type=chunk) [Item 14. Principal Accountant Fees and Services](index=138&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[830](index=830&type=chunk) [PART IV](index=139&type=section&id=PART%20IV) This section lists financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K [Item 15. Exhibits and Financial Statement Schedules](index=139&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section details financial statements, schedules, and an index of exhibits required by Regulation S-K for the Annual Report on Form 10-K - Includes Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows for the periods ended December 31, 2022[832](index=832&type=chunk) - Contains Notes to Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firms[832](index=832&type=chunk) - Provides an index of exhibits required by Item 601 of Regulation S-K, including merger agreements, certificates of incorporation, indentures, and various other agreements[832](index=832&type=chunk)[836](index=836&type=chunk) [Item 16. Form 10‑K Summary](index=139&type=section&id=Item%2016.%20Form%2010%E2%80%91K%20Summary) No Form 10-K Summary is provided

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Comprehensive financial data including statements, management analysis, market risks, and internal controls [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited condensed consolidated financial statements for Q3 2022 reflect significant impacts from recent acquisitions and asset sales [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $1.33 billion due to acquisitions, significantly raising liabilities and stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,327,712** | **$926,395** | | Cash and cash equivalents | $300,789 | $201,525 | | Goodwill | $15,995 | $— | | Intangible assets | $258,489 | $— | | **Total Liabilities** | **$686,344** | **$6,816** | | Total current liabilities | $163,884 | $5,807 | | Long-term debt, net | $443,679 | $394,653 | | **Total Stockholders' Equity** | **$641,368** | **$525,935** | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q3 2022 revenue decreased due to TRC sale, but a significant gain from the sale boosted net income Q3 2022 vs Q3 2021 Income Statement (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Total Revenue | $67,257 | $97,862 | | Gain on sale of TRC | $266,696 | $— | | Net Income | $229,347 | $102,646 | | Net Income Attributable to Innoviva Stockholders | $265,523 | $72,438 | | Diluted EPS | $2.80 | $0.90 | Nine Months 2022 vs 2021 Income Statement (in thousands, except per share data) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Total Revenue | $265,536 | $284,186 | | Gain on sale of TRC | $266,696 | $— | | Net Income | $288,576 | $323,187 | | Net Income Attributable to Innoviva Stockholders | $282,235 | $255,509 | | Diluted EPS | $3.07 | $2.63 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow provided $192.8 million, with investing and financing activities reflecting acquisitions and debt restructuring Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $192,827 | $265,432 | | Net cash (used in) provided by investing activities | $(47,956) | $63,627 | | Net cash used in financing activities | $(45,567) | $(440,431) | | **Net increase (decrease) in cash** | **$99,304** | **$(111,372)** | | **Cash and cash equivalents at end of period** | **$300,789** | **$135,115** | - Key investing activities included the **$150.5 million** cash paid for the La Jolla acquisition and **$248.2 million** in proceeds from the sale of the company's interest in TRC[18](index=18&type=chunk)[19](index=19&type=chunk) - Financing activities were driven by the issuance of **$252.5 million** in 2028 convertible notes, offset by a **$165.1 million** repurchase of 2023 convertible notes and a **$42.4 million** payment for the Entasis minority interest[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain significant accounting policies and transactions, including major acquisitions and asset sales impacting comparability - The company's portfolio expanded through the acquisition of Entasis (July 11, 2022) and La Jolla (August 22, 2022), adding commercial products GIAPREZA® and XERAVA® and a development pipeline[23](index=23&type=chunk) - On July 20, 2022, the company sold its **15%** ownership interest in Theravance Respiratory Company, LLC (TRC), and is no longer entitled to royalties from TRELEGY® ELLIPTA® sales[22](index=22&type=chunk) - The company adopted ASU 2020-06, simplifying the accounting for convertible instruments, which impacted the accounting for its 2025 Notes and the calculation of diluted EPS[56](index=56&type=chunk)[57](index=57&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial impact of strategic acquisitions and asset sales on revenue, expenses, and liquidity [Overview](index=40&type=section&id=Overview) Innoviva diversified its portfolio through strategic acquisitions of Entasis and La Jolla, and the sale of its TRC interest - Completed the acquisition of Entasis on July 11, 2022, adding an infectious disease R&D platform with lead asset SUL-DUR[194](index=194&type=chunk) - Completed the acquisition of La Jolla on August 22, 2022, for a net cash price of **$150.5 million**, adding commercial products GIAPREZA® and XERAVA®[194](index=194&type=chunk) - Completed the sale of its **15%** ownership interest in TRC to Royalty Pharma for **$282.0 million** on July 20, 2022, plus potential milestones[194](index=194&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Q3 2022 revenue declined due to TRC sale, offset by new product sales, while operating expenses significantly increased Royalty Revenue Breakdown (in thousands) | Royalty Source | Q3 2022 | Q3 2021 | Change % | | :--- | :--- | :--- | :--- | | RELVAR/BREO | $55,663 | $54,092 | 3% | | ANORO | $9,943 | $11,641 | (15)% | | TRELEGY | $— | $35,585 | (100)% | | **Total Royalties** | **$65,606** | **$101,318** | **(35)%** | - Net product sales of **$5.1 million** were recognized from the date of the La Jolla acquisition (Aug 22, 2022) to Sep 30, 2022, comprising **$3.8 million** from GIAPREZA® and **$1.3 million** from XERAVA®[207](index=207&type=chunk) - R&D expenses increased to **$11.7 million** in Q3 2022 from **$0.4 million** in Q3 2021, mainly attributable to Entasis' product development for SUL-DUR[208](index=208&type=chunk)[209](index=209&type=chunk) - SG&A expenses increased to **$27.8 million** in Q3 2022 from **$2.9 million** in Q3 2021, due to the consolidation of Entasis and La Jolla operating expenses[210](index=210&type=chunk)[211](index=211&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) Innoviva maintains strong liquidity with **$300.8 million** cash, sufficient for future operations and debt service - The company ended Q3 2022 with **$300.8 million** in cash and cash equivalents and **$65.6 million** in receivables from GSK[221](index=221&type=chunk) - Management believes cash from future royalties and existing cash reserves will be sufficient to meet needs for at least the next 12 months[222](index=222&type=chunk) Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $192,827 | $265,432 | | Net cash (used in) provided by investing activities | $(47,956) | $63,627 | | Net cash used in financing activities | $(45,567) | $(440,431) | - Significant new contractual obligations include interest and principal on the **$261.0 million** 2028 Notes and a deferred royalty obligation to HCR on GIAPREZA® sales, acquired with La Jolla[230](index=230&type=chunk)[232](index=232&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from investments and inflation, though debt obligations have fixed interest rates - The company's debt bears fixed interest rates, mitigating risk from interest rate changes on its debt obligations[235](index=235&type=chunk) - The company is exposed to fair value fluctuations in its investments in equity and debt securities, which could lead to material gains or losses[236](index=236&type=chunk) - Inflationary factors, such as increased costs for raw materials and overhead, may adversely affect future operating results, although the impact to date has not been material[238](index=238&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were effective, with ongoing integration of internal controls for newly acquired businesses - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2022[239](index=239&type=chunk) - The company is integrating the acquired operations of Entasis and La Jolla and implementing new internal controls related to inventory management, R&D, and product sales[241](index=241&type=chunk) [PART II. OTHER INFORMATION](index=49&type=section&id=PART%20II.%20OTHER%20INFORMATION) Additional disclosures include legal proceedings, updated risk factors, and a list of filed exhibits [Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) The company is engaged in a patent infringement lawsuit to protect GIAPREZA® from generic competition - La Jolla (now a subsidiary) filed a patent infringement suit against Gland Pharma Limited on March 29, 2022, in response to Gland's ANDA filing for a generic version of GIAPREZA®[243](index=243&type=chunk)[244](index=244&type=chunk) - The lawsuit triggers a stay under the Hatch-Waxman Act, preventing the FDA from approving Gland's ANDA for up to **7.5 years** from the original NDA approval, unless the patents are found invalid, unenforceable, or not infringed[244](index=244&type=chunk) [Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) Risk factors are supplemented to include those related to the recent acquisitions of Entasis and La Jolla - Risk factors have been supplemented to include those related to the acquisitions of Entasis and La Jolla[245](index=245&type=chunk)[246](index=246&type=chunk) - The company incorporates by reference the risk factors detailed in the standalone 10-K filings of Entasis and La Jolla, and a Form 8-K filed on August 23, 2022[245](index=245&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None reported for the period - None[248](index=248&type=chunk) [Exhibits](index=51&type=section&id=Item%206.%20Exhibits) An index of all exhibits filed with the Form 10-Q, including merger agreements and debt indentures - Lists exhibits filed with the report, including merger agreements, debt indentures, and certifications[253](index=253&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 000-30319 INNOVIVA, INC. (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporation or Org ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Innoviva, Inc.'s unaudited consolidated financial statements for the three months ended March 31, 2022 and 2021, including balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, including assets, liabilities, and equity, as of March 31, 2022, and December 31, 2021 | (In thousands) | March 31, 2022 (unaudited) | December 31, 2021* | | :--------------------------------- | :------------------------- | :------------------- | | **Assets** | | | | Cash and cash equivalents | $ 216,802 | $ 201,525 | | Total current assets | $ 317,823 | $ 313,673 | | Equity and long-term investments | $ 544,437 | $ 483,845 | | Goodwill | $ 5,544 | $ — | | Intangible assets | $ 105,000 | $ — | | Total assets | $ 1,107,474 | $ 926,395 | | **Liabilities and Stockholders' Equity** | | | | Total current liabilities | $ 109,227 | $ 5,807 | | Long-term debt, net | $ 442,731 | $ 394,653 | | Total stockholders' equity | $ 552,217 | $ 525,935 | | Total liabilities and stockholders' equity | $ 1,107,474 | $ 926,395 | [Unaudited Consolidated Statements of Income](index=4&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Income) This section details the company's revenues, expenses, and net income for the three months ended March 31, 2022, and 2021, including per share data | (In thousands, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Royalty revenue from a related party, net | $ 90,059 | $ 85,518 | | Total operating expenses | $ 12,330 | $ 6,035 | | Income from operations | $ 77,729 | $ 79,483 | | Loss on debt extinguishment | $ (20,662) | $ — | | Changes in fair values of equity and long-term investments, net | $ (9,411) | $ 55,045 | | Net income | $ 37,858 | $ 109,695 | | Net income attributable to Innoviva stockholders | $ 15,773 | $ 94,123 | | Basic net income per share attributable to Innoviva stockholders | $ 0.23 | $ 0.93 | | Diluted net income per share attributable to Innoviva stockholders | $ 0.20 | $ 0.84 | [Unaudited Consolidated Statements of Comprehensive Income](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's comprehensive income, including net income and other comprehensive income, for the three months ended March 31, 2022, and 2021 | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------- | :-------------------------------- | :-------------------------------- | | Net income | $ 37,858 | $ 109,695 | | Comprehensive income | $ 37,858 | $ 109,695 | | Comprehensive income attributable to Innoviva stockholders | $ 15,773 | $ 94,123 | [Unaudited Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in stockholders' equity, including net income, comprehensive income, and the impact of accounting standard adoptions, for the three months ended March 31, 2022, and 2021 - Total Innoviva stockholders' equity decreased from **$414,743 thousand** as of December 31, 2021, to **$386,642 thousand** as of March 31, 2022[18](index=18&type=chunk) - The adoption of ASU 2020-06 resulted in a cumulative adjustment decreasing additional paid-in capital by **$65.361 million** and increasing accumulated deficit by **$37.238 million**[18](index=18&type=chunk) - Net income attributable to Innoviva stockholders for the three months ended March 31, 2022, was **$15,773 thousand**, contributing to the accumulated deficit[18](index=18&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022, and 2021 | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $ 98,102 | $ 84,107 | | Net cash used in investing activities | $ (143,156) | $ (26,394) | | Net cash provided by (used in) financing activities | $ 60,331 | $ (21,310) | | Net increase in cash and cash equivalents | $ 15,277 | $ 36,403 | | Cash and cash equivalents at end of period | $ 216,802 | $ 282,890 | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements, covering accounting policies, revenue, debt, and other financial instruments [1. Description of Operations and Summary of Significant Accounting Policies](index=9&type=section&id=1.%20Description%20of%20Operations%20and%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines Innoviva's business operations, including its royalty portfolio, and summarizes key accounting policies and recent accounting standard adoptions - Innoviva's royalty portfolio includes respiratory assets partnered with GSK: RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, and TRELEGY® ELLIPTA®[24](index=24&type=chunk) - The company adopted ASU 2020-06 on January 1, 2022, using the modified retrospective approach, simplifying accounting for convertible instruments and impacting the 2025 Notes by decreasing accumulated deficit by **$37.2 million** and reducing additional paid-in capital by **$65.4 million**[38](index=38&type=chunk)[39](index=39&type=chunk) [2. Net Income Per Share](index=11&type=section&id=2.%20Net%20Income%20Per%20Share) This section provides a breakdown of basic and diluted net income per share attributable to Innoviva stockholders for the periods presented | (In thousands except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income attributable to Innoviva stockholders, basic | $ 15,773 | $ 94,123 | | Net income attributable to Innoviva stockholders, diluted | $ 18,342 | $ 95,327 | | Shares used to compute basic net income per share | 69,544 | 101,365 | | Shares used to compute diluted net income per share | 93,730 | 113,624 | | Basic net income per share attributable to Innoviva stockholders | $ 0.23 | $ 0.93 | | Diluted net income per share attributable to Innoviva stockholders | $ 0.20 | $ 0.84 | - The adoption of ASU 2020-06 resulted in a dilutive EPS of approximately **$0.03 per share** for the 2025 Notes for the three months ended March 31, 2022, using the if-converted method[41](index=41&type=chunk) [3. Revenue Recognition and Collaborative Arrangements](index=13&type=section&id=3.%20Revenue%20Recognition%20and%20Collaborative%20Arrangements) This section details the company's royalty revenue from GSK's respiratory products and the accounting treatment of related collaborative arrangements | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Royalties from a related party - RELVAR/BREO | $ 55,764 | $ 56,390 | | Royalties from a related party - ANORO | $ 8,442 | $ 10,500 | | Royalties from a related party - TRELEGY | $ 29,309 | $ 22,084 | | Total royalties from a related party | $ 93,515 | $ 88,974 | | Less: amortization of capitalized fees paid to a related party | $ (3,456) | $ (3,456) | | Royalty revenue from GSK | $ 90,059 | $ 85,518 | [4. Consolidated Entities](index=13&type=section&id=4.%20Consolidated%20Entities) This section explains the consolidation of financial results for Variable Interest Entities, including Theravance Respiratory Company, Entasis Therapeutics, and ISP Fund LP - Innoviva consolidates the financial results of Theravance Respiratory Company, LLC (TRC), Entasis Therapeutics Holdings, Inc. (Entasis), and ISP Fund LP, as it is determined to be the primary beneficiary of these Variable Interest Entities (VIEs)[46](index=46&type=chunk) - Innoviva consolidated Entasis' financial position and results of operations effective February 17, 2022, after purchasing a **$15.0 million** convertible promissory note, determining Innoviva to be the primary beneficiary[52](index=52&type=chunk) Entasis Preliminary Allocation of Fair Values (February 17, 2022): | (In thousands) | Amount | | :-------------------------- | :----- | | Total assets acquired | $ 142,141 | | Total liabilities assumed | $ 7,736 | | Total assets acquired, net | $ 134,405 | [5. Financial Instruments and Fair Value Measurements](index=17&type=section&id=5.%20Financial%20Instruments%20and%20Fair%20Value%20Measurements) This section details the company's financial instruments, including equity and debt investments, and their fair value measurements categorized by valuation levels - Innoviva invested **$45.0 million** in Armata Pharmaceuticals, Inc. in Q1 2022, increasing its ownership to approximately **69.4%** of common stock, while maintaining significant influence but not control[66](index=66&type=chunk) Fair Values of Equity and Long-Term Investments (March 31, 2022): | Types of Instruments (In thousands) | Level 1 | Level 2 | Level 3 | Total | | :---------------------------------- | :------ | :------ | :------ | :------ | | Money market funds | $ 103,181 | $ — | $ — | $ 103,181 | | Investments held by ISP Fund LP | $ 305,516 | $ — | $ 2,060 | $ 307,576 | | Equity investment - Armata Common Stock | $ 122,625 | $ — | $ — | $ 122,625 | | Equity investment - Armata Warrants | $ — | $ 64,894 | $ — | $ 64,894 | | Equity investment - InCarda Warrants | $ — | $ — | $ 1,040 | $ 1,040 | | Convertible debt investment - InCarda Note | $ — | $ — | $ 652 | $ 652 | | Convertible debt investment - Gate Note | $ — | $ — | $ 14,900 | $ 14,900 | | Total assets measured at estimated fair value | $ 531,322 | $ 64,894 | $ 18,652 | $ 614,868 | - The fair value of Armata common stock and publicly traded ISP Fund LP investments are Level 1, while Armata warrants are Level 2. InCarda's convertible note and warrants, Gate's convertible note, and private placements in ISP Fund LP are Level 3[85](index=85&type=chunk)[86](index=86&type=chunk) [6. Goodwill and Intangible Assets](index=22&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets) This section details the recognition and carrying amounts of goodwill and intangible assets following the consolidation of Entasis Therapeutics - Goodwill and intangible assets were recognized at fair value upon the consolidation of Entasis on February 17, 2022, with a carrying amount of goodwill of **$5.5 million** as of March 31, 2022[88](index=88&type=chunk) Carrying Amount of Intangible Assets (March 31, 2022): | (In thousands) | Carrying Amount | | :-------------------------------- | :-------------- | | Intangible assets with indefinite life | $ 69,500 | | Intangible asset with determinable life | $ 35,500 | | Total | $ 105,000 | [7. Balance Sheet Components](index=22&type=section&id=7.%20Balance%20Sheet%20Components) This section provides a detailed breakdown of various accrued liabilities and other balance sheet components for the periods presented Other Accrued Liabilities (in thousands): | (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------------- | :------------- | :---------------- | | Accrued contract manufacturing | $ 2,610 | $ — | | Accrued clinical | $ 1,273 | $ — | | Accrued research | $ 361 | $ — | | Accrued professional services | $ 2,935 | $ 894 | | Current portion of lease liabilities | $ 622 | $ 106 | | Other | $ 272 | $ 9 | | Total other accrued liabilities | $ 8,073 | $ 1,009 | [8. Stock-Based Compensation](index=23&type=section&id=8.%20Stock-Based%20Compensation) This section details the stock-based compensation expense recognized by the company, including amounts allocated to general and administrative and research and development Stock-Based Compensation Expense (in thousands): | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | General and administrative | $ 788 | $ 451 | | Research and development | $ 166 | $ — | | Total | $ 954 | $ 451 | - Stock-based compensation expense increased to **$954 thousand** in Q1 2022 from **$451 thousand** in Q1 2021, including **$0.3 million** related to Entasis' equity awards[92](index=92&type=chunk) [9. Debt](index=23&type=section&id=9.%20Debt) This section provides a comprehensive overview of the company's debt instruments, including convertible notes, their carrying amounts, and recent financing activities Total Debt (in thousands): | (In thousands) | March 31, 2022 | December 31, 2021 | | :------------- | :------------- | :---------------- | | 2023 Notes | $ 96,207 | $ 240,984 | | 2025 Notes | $ 192,500 | $ 192,500 | | 2028 Notes | $ 261,000 | $ — | | Total debt | $ 549,707 | $ 433,484 | | Less: Unamortized debt discount and issuance costs | $ (10,960) | $ (38,831) | | Total debt, net | $ 538,747 | $ 394,653 | - In March 2022, Innoviva issued **$261.0 million** in 2028 Notes and used **$165.6 million** of the proceeds to repurchase **$144.8 million** (**60%**) of the 2023 Notes, resulting in a **$20.7 million** loss on debt extinguishment[101](index=101&type=chunk)[112](index=112&type=chunk) - The adoption of ASU 2020-06 on January 1, 2022, materially impacted the 2025 Notes by combining liability and equity components, changing the effective interest rate from **8.87%** to **2.88%**[107](index=107&type=chunk)[109](index=109&type=chunk) [10. Commitments and Contingencies](index=28&type=section&id=10.%20Commitments%20and%20Contingencies) This section outlines the company's contractual obligations, including operating lease liabilities assumed from consolidated entities - Innoviva assumed contractual obligations related to Entasis' operating lease for office and laboratory space in Waltham, Massachusetts, with total undiscounted future minimum lease payments of **$4.5 million** as of March 31, 2022[163](index=163&type=chunk) Operating Lease Liabilities (in thousands): | (In thousands) | March 31, 2022 | December 31, 2021 | | :------------- | :------------- | :---------------- | | Right-of-use assets | $ 3,794 | $ 97 | | Lease liabilities, current | $ 622 | $ 106 | | Lease liabilities, long-term | $ 3,299 | $ — | | Total lease liabilities | $ 3,921 | $ 106 | [11. Income Taxes](index=29&type=section&id=11.%20Income%20Taxes) This section reports the provisional income tax expense and effective tax rate for the three months ended March 31, 2022, and 2021 - Provisional income tax expense for the three months ended March 31, 2022, was **$6.9 million**, with an effective income tax rate of **15.3%**, compared to **$19.7 million** and **15.2%** for the same period in 2021[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Innoviva's financial condition and results of operations, highlighting key financial performance, recent strategic activities, and liquidity [Forward-Looking Statements](index=30&type=section&id=Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements subject to substantial risks and uncertainties, including those related to royalty revenue and competition - The report contains forward-looking statements regarding strategy, future operations, financial position, revenue, costs, and objectives, which involve substantial risks and uncertainties[132](index=132&type=chunk) - Key risk factors include lower than expected royalty revenue from GSK respiratory products, substantial competition, and risks related to capital deployment and growth strategy[132](index=132&type=chunk) [OVERVIEW](index=31&type=section&id=OVERVIEW) This section provides an overview of Innoviva's business model, focusing on its royalty portfolio from GSK respiratory products and its capital allocation strategy - Innoviva manages a portfolio of royalties and healthcare assets, primarily from respiratory products partnered with GSK, including RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, and TRELEGY® ELLIPTA®[135](index=135&type=chunk) - The company's structure is focused on managing GSK respiratory assets, optimizing capital allocation, and fulfilling public company reporting functions[136](index=136&type=chunk) [Recent Highlights](index=31&type=section&id=Recent%20Highlights) This section summarizes key recent events, including GSK product net sales performance, strategic investments, and debt financing activities GSK Net Sales (Q1 2022 vs Q1 2021): | Product | Q1 2022 Net Sales | Q1 2021 Net Sales | Change (%) | | :---------------- | :---------------- | :---------------- | :--------- | | RELVAR®/BREO® ELLIPTA® | $371.8 million | $375.9 million | -1% | | ANORO® ELLIPTA® | $129.9 million | $161.5 million | -20% | | TRELEGY® ELLIPTA® | $450.9 million | $339.8 million | +33% | - Innoviva Strategic Opportunities LLC invested **$45.0 million** in Armata, increasing ownership to approximately **69%**, and purchased a **$15.0 million** convertible note from Entasis, leading to Entasis' consolidation[138](index=138&type=chunk) - The company issued **$261.0 million** in 2028 Notes and used a portion to repurchase **$144.8 million** of 2023 Notes, resulting in a **$20.7 million** accounting loss on debt extinguishment[138](index=138&type=chunk) [Collaborative Arrangements with GSK](index=32&type=section&id=Collaborative%20Arrangements%20with%20GSK) This section describes Innoviva's long-standing collaboration with GSK for the development and commercialization of once-daily LABA products for respiratory conditions - Innoviva's LABA collaboration with GSK, initiated in 2002, focuses on developing and commercializing once-daily LABA products for COPD and asthma, including RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, and TRELEGY® ELLIPTA®[139](index=139&type=chunk)[141](index=141&type=chunk) - Milestone fees of **$220.0 million** were paid to GSK in 2014 and are being amortized over the estimated useful lives of the products, with no further milestone payment obligations[139](index=139&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the significant accounting policies and estimates used in preparing the financial statements, noting any recent changes - The financial statements are prepared in accordance with US GAAP, requiring estimates and assumptions that affect reported amounts and disclosures[140](index=140&type=chunk) - Management believes there have been no significant changes in critical accounting policies from those described in the 2021 Form 10-K, other than those detailed in Note 1[140](index=140&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, expenses, and net income, for the three months ended March 31, 2022, compared to the prior year [Net Revenue](index=33&type=section&id=Net%20Revenue) This section details the company's royalty revenue from GSK products, highlighting changes in contributions from RELVAR/BREO, ANORO, and TRELEGY Royalty Revenue from GSK (in thousands): | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Royalties from a related party - RELVAR/BREO | $ 55,764 | $ 56,390 | $ (626) | (1)% | | Royalties from a related party - ANORO | $ 8,442 | $ 10,500 | $ (2,058) | (20)% | | Royalties from a related party - TRELEGY | $ 29,309 | $ 22,084 | $ 7,225 | 33% | | Total royalties from a related party | $ 93,515 | $ 88,974 | $ 4,541 | 5% | | Royalty revenue from GSK | $ 90,059 | $ 85,518 | $ 4,541 | 5% | - Total net revenue increased by **5%** to **$90.1 million** for Q1 2022, primarily driven by growth in TRELEGY® ELLIPTA® prescriptions[142](index=142&type=chunk) [Research & Development](index=33&type=section&id=Research%20%26%20Development) This section discusses the company's research and development expenses, primarily driven by product development efforts of consolidated entities - Research and development expenses were **$5.8 million** for Q1 2022, primarily due to Entasis' product development efforts, a significant increase from **$49 thousand** in Q1 2021[12](index=12&type=chunk)[143](index=143&type=chunk) [General & Administrative](index=33&type=section&id=General%20%26%20Administrative) This section analyzes the increase in general and administrative expenses, mainly attributed to the consolidation of Entasis' operating expenses - General and administrative expenses increased by **8%** to **$6.5 million** for Q1 2022, mainly due to the consolidation of Entasis' operating expenses (**$2.0 million**) starting February 17, 2022[144](index=144&type=chunk) [Interest and dividend income and other expense, net](index=34&type=section&id=Interest%20and%20dividend%20income%20and%20other%20expense,%20net) This section reports the increase in interest and dividend income, primarily driven by higher returns on investments managed by ISP Fund LP - Interest and dividend income increased to **$322 thousand** in Q1 2022 from **$30 thousand** in Q1 2021, driven by higher returns on investments, including those managed by ISP Fund LP[146](index=146&type=chunk) [Interest Expense](index=34&type=section&id=Interest%20Expense) This section explains the decrease in interest expense, primarily due to the accounting adjustment of debt discount associated with the 2025 Notes - Interest expense decreased by **36%** to **$3.0 million** for Q1 2022, primarily due to the adoption of ASU 2020-06, which adjusted the debt discount associated with the 2025 Notes to zero[147](index=147&type=chunk) [Loss on Debt Extinguishment](index=34&type=section&id=Loss%20on%20Debt%20Extinguishment) This section reports the significant loss recognized from the repurchase of 2023 Notes, including premium payment and write-off of debt issuance costs - A loss of **$20.7 million** was recognized in Q1 2022 due to the repurchase of **$144.8 million** of 2023 Notes, comprising a **$20.4 million** premium payment and a **$0.3 million** write-off of debt issuance costs[148](index=148&type=chunk) [Changes in Fair Values of Equity and Long-Term Investments](index=34&type=section&id=Changes%20in%20Fair%20Values%20of%20Equity%20and%20Long-Term%20Investments) This section discusses the net loss from changes in fair values of equity and long-term investments, primarily due to capital market volatility - Changes in fair values of equity and long-term investments resulted in a net loss of **$9.4 million** in Q1 2022, a significant decrease from a **$55.0 million** net gain in Q1 2021, mainly due to capital market volatility[149](index=149&type=chunk)[150](index=150&type=chunk) [Provision for Income Taxes](index=35&type=section&id=Provision%20for%20Income%20Taxes) This section reports the provisional income tax expense and effective tax rate, noting the impact of noncontrolling interest on the rate - Provisional income tax expense was **$6.9 million** in Q1 2022 (**15.3%** effective rate) compared to **$19.7 million** in Q1 2021 (**15.2%** effective rate), with the lower rate primarily due to noncontrolling interest[151](index=151&type=chunk) [Net Income Attributable to Noncontrolling Interest](index=35&type=section&id=Net%20Income%20Attributable%20to%20Noncontrolling%20Interest) This section details the increase in net income attributable to noncontrolling interest, primarily from TRC and Entasis - Net income attributable to noncontrolling interest increased by **42%** to **$22.1 million** in Q1 2022, primarily due to the **85%** share of net income in TRC and a **$3.0 million** net loss for Entasis' noncontrolling interest[152](index=152&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations, discussing cash resources, financing activities, and future capital needs [Liquidity](index=35&type=section&id=Liquidity) This section describes how Innoviva's operations are financed, highlighting cash and cash equivalents and receivables from GSK - Innoviva's operations are financed primarily through equity and debt offerings and collaborative arrangements, generating **$93.5 million** in gross royalty revenues from GSK in Q1 2022[153](index=153&type=chunk) - As of March 31, 2022, cash and cash equivalents totaled **$216.8 million** (including Entasis' **$33.5 million**), and receivables from GSK were **$93.5 million**[153](index=153&type=chunk) [Adequacy of Cash Resources to Meet Future Needs](index=35&type=section&id=Adequacy%20of%20Cash%20Resources%20to%20Meet%20Future%20Needs) This section assesses management's belief regarding the sufficiency of current cash and projected royalty revenues to cover anticipated debt service and operating needs - Management believes current cash resources and projected royalty revenues will be sufficient to meet anticipated debt service and operating needs for at least the next **12 months**[154](index=154&type=chunk) - The company may seek additional funding through equity or debt financings if operating plans change or favorable opportunities arise, but availability and terms are not guaranteed[154](index=154&type=chunk) [Cash Flows](index=35&type=section&id=Cash%20Flows) This section summarizes the cash flows from operating, investing, and financing activities, highlighting key drivers for changes in each category Cash Flow Summary (in thousands): | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :--------- | | Net cash provided by operating activities | $ 98,102 | $ 84,107 | $ 13,995 | | Net cash used in investing activities | $ (143,156) | $ (26,394) | $ (116,762) | | Net cash provided by (used in) financing activities | $ 60,331 | $ (21,310) | $ 81,641 | - Operating cash flow increased to **$98.1 million** in Q1 2022, driven by net income, deferred income tax, depreciation, debt extinguishment loss, and a decrease in fair value of investments[156](index=156&type=chunk) - Investing activities used **$143.2 million** in Q1 2022, primarily for purchases of equity and other investments managed by ISP Fund LP and investments in Armata, InCarda, and Nanolive, partially offset by cash acquired from Entasis consolidation[158](index=158&type=chunk) - Financing activities provided **$60.3 million** in Q1 2022, mainly from the issuance of 2028 Notes, offset by capped call option purchases, 2023 Notes repurchase, and distributions to noncontrolling interest[160](index=160&type=chunk) [Contractual Obligations](index=36&type=section&id=Contractual%20Obligations) This section details the company's significant contractual obligations, including scheduled maturities of convertible debt and operating lease payments Aggregate Scheduled Maturities of Convertible Debt (as of March 31, 2022, in thousands): | Years ending December 31: | Amount | | :------------------------ | :----- | | 2023 | $ 96,207 | | 2025 | $ 192,500 | | Thereafter (2028 Notes) | $ 261,000 | | Total | $ 549,707 | - Innoviva's contractual obligations include **$549.7 million** in convertible debt, with maturities in 2023 (**$96.2 million**), 2025 (**$192.5 million**), and 2028 (**$261.0 million**)[162](index=162&type=chunk) - The company also assumed **$4.5 million** in total undiscounted future minimum lease payments related to Entasis' operating lease, expiring in 2025[163](index=163&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no significant changes in the company's market risk or its management compared to what was disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - No significant changes in market risk or market risk management have occurred since the 2021 Annual Report on Form 10-K[165](index=165&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures, concluding their effectiveness as of March 31, 2022 - Management, including the CEO and Chief Accounting Officer, concluded that disclosure controls and procedures were effective at reasonable assurance levels as of March 31, 2022[166](index=166&type=chunk) - Control systems provide reasonable, not absolute, assurance and are subject to inherent limitations, including resource constraints and the risk of deterioration over time[167](index=167&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[168](index=168&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there have been no material changes to the company's legal proceedings from those reported in its fiscal year 2021 Annual Report on Form 10-K - No material changes to legal proceedings have occurred since the 2021 Annual Report on Form 10-K[169](index=169&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously described in the company's 2021 Form 10-K - No material changes to risk factors have occurred since the 2021 Annual Report on Form 10-K[170](index=170&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports that there were no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds occurred during the period[171](index=171&type=chunk) [Item 3. Defaults Upon Senior Securities](index=37&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the period[172](index=172&type=chunk) [Item 4. Mine Safety Disclosure](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This section indicates that there are no mine safety disclosures to report - No mine safety disclosures are applicable or reported[173](index=173&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information is reported in this section[174](index=174&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including corporate documents, indentures for convertible notes, certifications, and XBRL-related documents - The exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), debt instruments (Indentures for 2023, 2025, and 2028 Notes), and regulatory certifications (CEO/CFO certifications, XBRL documents)[175](index=175&type=chunk) [Signatures](index=39&type=section&id=Signatures) This section contains the required signatures of Innoviva, Inc.'s Chief Executive Officer and Chief Accounting Officer, certifying the filing of the report - The report is signed by Pavel Raifeld, Chief Executive Officer, and Marianne Zhen, Chief Accounting Officer, on May 05, 2022[179](index=179&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K | (Mark One) | | | --- | --- | | ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | | For the fiscal year ended December 31, 2021 | | | or | | | ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | | to | For the transition period from | | Commission File No. 000-30319 | | | INNOVIVA, INC. | | | (Exact name of registrant as spec ...

Entasis Therapeutics Holdings Inc. (ETTX) Q3 2021 Earnings Conference Call November 3, 2021 8:00 AM ET Company Participants Bruce Mackle - Managing Director, LifeSci Advisors Manoussos Perros - President and CEO Mike Gutch - CFO and Chief Business Officer David Altarac - Chief Medical Officer Conference Call Participants Carvey Leung - Cantor Fitzgerald James Molloy - Alliance Global Partners Thomas Yip - H.C. Wainwright & Co. Robert Driscoll - Wedbush Securities Operator Good day, and welcome to the Entasi ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section covers unaudited financial statements, management's discussion, market risk, and internal controls [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Assets decreased due to share repurchase, net income rose from royalties and investment gains, and operating cash flow was strong [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet shows decreased total assets and cash due to a share repurchase, offset by increased equity investments Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $135,115 | $246,487 | | Equity and long-term investments | $507,116 | $438,258 | | **Total Assets** | **$887,239** | **$999,570** | | **Liabilities & Equity** | | | | Long-term debt, net | $392,295 | $385,517 | | Treasury stock | ($393,829) | $0 | | **Total Stockholders' Equity** | **$491,805** | **$607,837** | - The significant decrease in cash and cash equivalents and the appearance of treasury stock are primarily due to the repurchase of common stock during the period[8](index=8&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income and EPS grew significantly, driven by increased revenue and positive fair value changes in investments Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $97,862 | $88,694 | $284,186 | $246,318 | | Income from operations | $94,553 | $84,430 | $270,576 | $236,336 | | Changes in fair values of investments, net | $33,613 | ($29,368) | $133,973 | $39,245 | | Net income attributable to Innoviva | $72,438 | $28,218 | $255,509 | $170,499 | | Diluted EPS | $0.90 | $0.26 | $2.63 | $1.53 | - Net income growth was driven by a **10% YoY increase** in Q3 royalty revenue and significant positive swings in the fair value of equity and long-term investments compared to the prior year[11](index=11&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statement shows strong operating cash, positive investing, and significant financing outflow from a share repurchase Consolidated Cash Flow Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $265,432 | $227,833 | | Net cash provided by investing activities | $63,627 | $544 | | Net cash used in financing activities | ($440,431) | ($27,280) | | **Net (decrease) increase in cash** | **($111,372)** | **$201,097** | - The significant use of cash in financing activities was primarily due to a **$394.1 million repurchase of common stock**[21](index=21&type=chunk)[119](index=119&type=chunk) - Investing activities were positive due to a **$110.0 million distribution** from equity investments, offsetting new purchases[21](index=21&type=chunk)[119](index=119&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the company's royalty-based business, revenue, VIEs, equity investments, debt, and a major share repurchase - The company's primary business is managing a portfolio of royalties from respiratory assets partnered with Glaxo Group Limited (GSK), including RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, and TRELEGY® ELLIPTA®[23](index=23&type=chunk) Royalty Revenue by Product (in thousands) | Product | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | RELVAR/BREO | $54,092 | $63,893 | $176,398 | $165,612 | | ANORO | $11,641 | $11,882 | $34,101 | $32,931 | | TRELEGY | $35,585 | $16,375 | $84,055 | $48,143 | - The company consolidates several Variable Interest Entities (VIEs), including Theravance Respiratory Company, LLC (TRC), Pulmoquine Therapeutics, Inc., and ISP Fund LP, a partnership with Sarissa Capital[42](index=42&type=chunk) - Significant equity investments are held in Armata Pharmaceuticals and Entasis Therapeutics, which are accounted for at fair value, leading to substantial unrealized gains recorded in the income statement[53](index=53&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) - On May 20, 2021, the company repurchased all **32,005,260 shares** of its common stock held by GSK for a total of **$394.1 million**[82](index=82&type=chunk) - These shares are now held as treasury stock[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses royalty-based business, revenue growth, increased expenses, and strong liquidity after a share repurchase [Overview and Recent Highlights](index=24&type=section&id=Overview%20and%20Recent%20Highlights) This section provides an overview of the company's royalty portfolio and business structure, highlighting key product sales GSK Net Sales of Partnered Products - Q3 2021 | Product | Q3 2021 Net Sales | YoY Change | | :--- | :--- | :--- | | RELVAR®/BREO® ELLIPTA® | $360.6 million | -15% | | ANORO® ELLIPTA® | $179.1 million | -2% | | TRELEGY® ELLIPTA® | $445.6 million | +77% | - The company's royalty portfolio consists of respiratory assets partnered with GSK[88](index=88&type=chunk)[89](index=89&type=chunk) - The business structure is tailored to manage these assets, optimize operations, and manage capital allocation[88](index=88&type=chunk)[89](index=89&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section details revenue growth, operating expense changes, and fair value adjustments' impact on financial results - Total net revenue increased by **10% to $97.9 million** in Q3 2021 and by **15% to $284.2 million** for the nine months ended Sep 30, 2021, compared to the same periods in 2020[101](index=101&type=chunk) - The growth in revenue was primarily driven by a **117% YoY increase** in TRELEGY® royalties in Q3 2021, which more than offset a **15% decline** in RELVAR/BREO® royalties[101](index=101&type=chunk) - General and administrative expenses increased **55%** for the nine-month period, mainly due to business development advisory fees and legal expenses related to arbitration with Theravance Biopharma[103](index=103&type=chunk) - Changes in fair values of equity and long-term investments contributed a gain of **$33.6 million** in Q3 2021 and **$134.0 million** for the nine-month period, reflecting strong performance of investments in Armata, Entasis, and the ISP Fund[107](index=107&type=chunk)[108](index=108&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses cash position, liquidity outlook, and the impact of financing activities, including the share repurchase - As of September 30, 2021, the company had **$135.1 million** in cash and cash equivalents and **$101.3 million** in receivables from GSK[112](index=112&type=chunk) - Management believes that cash from future royalty revenues and existing cash reserves will be sufficient to meet operating and debt service needs for at least the next 12 months[113](index=113&type=chunk) Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $265,432 | $227,833 | | Net cash from investing activities | $63,627 | $544 | | Net cash used in financing activities | ($440,431) | ($27,280) | - The primary use of cash in financing activities for the nine months of 2021 was the **$394.1 million repurchase of common stock** from GSK[119](index=119&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk or its management are reported compared to the 2020 Annual Report on Form 10-K - There have been no significant changes in the company's market risk profile or its management since the year ended December 31, 2020[120](index=120&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control - Based on an evaluation as of September 30, 2021, the Chief Executive Officer and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective[121](index=121&type=chunk) - No material changes were made to the company's internal control over financial reporting during the quarter ended September 30, 2021[123](index=123&type=chunk) [PART II. OTHER INFORMATION](index=29&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company won arbitration against Theravance Biopharma, confirming its authority to withhold TRC royalty proceeds for reinvestment - Theravance Biopharma initiated arbitration challenging Innoviva's authority, as manager of TRC, to withhold royalty proceeds from GSK for reinvestment[124](index=124&type=chunk)[127](index=127&type=chunk) - The arbitrator ruled that Innoviva did not breach the operating agreement or its fiduciary duties by withholding royalties to pursue investment opportunities, and the award was confirmed by the Delaware Court of Chancery[127](index=127&type=chunk)[128](index=128&type=chunk) - The arbitrator also ruled that Innoviva is entitled to indemnification from TRC for **100%** of its fees and expenses incurred in the second arbitration[127](index=127&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - No material changes have been made to the risk factors described in the company's 2020 Form 10-K[129](index=129&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None reported for the period - The company reported no unregistered sales of equity securities or use of proceeds during the period[130](index=130&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as exhibits[134](index=134&type=chunk)

Entasis Therapeutics Holdings Inc. (ETTX) Q2 2021 Earnings Conference Call August 12, 2021 8:00 AM ET Company Participants Bruce Mackle - Managing Director, LifeSci Advisors Manoussos Perros - President and CEO Mike Gutch - CFO and Chief Business Officer David Altarac - Chief Medical Officer Conference Call Participants Matthew Luchini - BMO Capital Markets Ed Arce - H.C. Wainwright & Co. Operator Good morning, ladies and gentlemen, and welcome to the Entasis Therapeutics' Second Quarter Results Conference ...