Innoviva(INVA) - 2019 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the quarter ended March 31, 2019, show an increase in total assets and stockholders' equity compared to year-end 2018, with net income rising to $40.0 million from $30.3 million in the prior-year period, driven by higher royalty revenue and significantly lower operating expenses, alongside strong cash flow from operations at $76.7 million and the adoption of the new lease standard (ASC 842) on January 1, 2019 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $65,151 | $62,417 | | Total current assets | $251,519 | $199,043 | | Total assets | $590,114 | $548,193 | | Liabilities & Equity | | | | Total current liabilities | $3,810 | $5,700 | | Long-term debt, net | $384,744 | $382,855 | | Total stockholders' equity | $199,943 | $159,052 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Royalty revenue from a related party, net | $55,183 | $52,380 | | Total operating expenses | $3,015 | $11,685 | | Income from operations | $52,168 | $40,695 | | Net income | $40,019 | $30,330 | | Net income attributable to Innoviva stockholders | $33,790 | $29,581 | | Diluted net income per share | $0.31 | $0.27 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net income | $40,019 | $30,330 | | Comprehensive income | $40,032 | $30,326 | | Comprehensive income attributable to Innoviva stockholders | $33,803 | $29,577 | Condensed Consolidated Statements of Stockholders' Equity (Deficit) - Total stockholders' equity increased from $159.1 million at December 31, 2018, to $199.9 million at March 31, 2019, primarily driven by net income of $40.0 million[19] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $76,655 | $49,914 | | Net cash provided by (used in) investing activities | ($74,167) | $26,513 | | Net cash provided by (used in) financing activities | $246 | ($122,625) | | Net increase (decrease) in cash | $2,734 | ($46,198) | Notes to Unaudited Condensed Consolidated Financial Statements - Innoviva's business is focused on royalty management, with a portfolio including respiratory assets partnered with GSK, such as RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, and TRELEGY® ELLIPTA®[23] Net Revenue from GSK Agreements (in thousands) | Product Royalties | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | RELVAR/BREO | $42,740 | $46,160 | | ANORO | $8,570 | $8,724 | | TRELEGY | $7,329 | $952 | | Total royalties from a related party | $58,639 | $55,836 | - The company adopted the new lease accounting standard (ASU 2016-02, Leases (Topic 842)) on January 1, 2019, resulting in the recognition of a $1.5 million right-of-use asset and $1.6 million in lease liabilities[27][28] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports a 5% year-over-year increase in total net revenue to $55.2 million for Q1 2019, primarily driven by strong growth in TRELEGY® ELLIPTA® royalties, which offset declines in RELVAR®/BREO® and ANORO® royalties due to pricing pressures, while operating expenses decreased significantly by $8.7 million mainly from the absence of one-time severance and settlement costs incurred in Q1 2018, and the company maintains a strong liquidity position with $192.2 million in cash and marketable securities, believing it has sufficient resources for at least the next 12 months GSK Net Sales of Key Products - Q1 2019 vs Q1 2018 | Product | Q1 2019 Net Sales | Q1 2018 Net Sales | % Change | | :--- | :--- | :--- | :--- | | RELVAR®/BREO® ELLIPTA® | $284.9M | $307.7M | -7% | | ANORO® ELLIPTA® | $131.8M | $134.2M | -2% | | TRELEGY® ELLIPTA® | $112.7M | $14.6M | +672% | - General and administrative expenses decreased by 66% to $3.0 million in Q1 2019 from $9.0 million in Q1 2018, with the prior year's quarter including $3.2 million in cash severance payments and a $2.7 million settlement reimbursement to Sarissa Group[74] - Interest expense decreased by 40% to $4.6 million in Q1 2019, primarily due to a lower average outstanding debt balance following prepayments on the Term B Loan in 2018[77] - The company believes its cash from future royalties, along with existing cash, cash equivalents, and marketable securities, will be sufficient to meet debt service and operating needs for at least the next 12 months[82] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reported no significant changes to its market risk profile or its management of market risk since the disclosures made in its 2018 Annual Report on Form 10-K - There have been no significant changes in the company's market risk or how it is managed compared to what was disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[92] Item 4. Controls and Procedures Based on an evaluation as of March 31, 2019, the company's management, including the Interim Principal Executive Officer and Chief Accounting Officer, concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that as of March 31, 2019, the company's disclosure controls and procedures were effective at a reasonable assurance level[93] - No material changes occurred in the company's internal control over financial reporting during the quarter ended March 31, 2019[95] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently a party to any material legal proceedings - The company is not a party to any material legal proceedings[97] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes have occurred to the risk factors described in the 2018 Form 10-K[98] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[99] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[100] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, which include officer certifications as required by the Sarbanes-Oxley Act and the Interactive Data File (XBRL) - The exhibits filed with this report include Certifications of the Principal Executive Officer (31.1) and Principal Financial Officer (31.2), Certifications Pursuant to 18 U.S.C. Section 1350 (32), and the Interactive Data File (101)[103] Signatures Signatures The report was duly signed and authorized on May 1, 2019, by Geoffrey Hulme, the Interim Principal Executive Officer, and Marianne Zhen, the Chief Accounting Officer - The report was signed on May 1, 2019, by Geoffrey Hulme (Interim Principal Executive Officer) and Marianne Zhen (Chief Accounting Officer)[107]