# Innoviva, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Innoviva, Inc.](/companies/inva.md) (CIK 1080014)
- Form: 10-Q
- Filed: 2023-08-02
- Accepted by EDGAR: Aug 2, 2023, 17:02 ET
- Period: 2023-06-30
- Accession: 0000950170-23-037296
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1080014/000095017023037296/inva-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1080014/000095017023037296/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $81.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $157.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $15.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $27.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $23.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $43.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $4.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $8.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $4.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $10.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $1.3m | us-gaap:ProfitLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $36.1m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.46 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.54 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 65,489,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 88,175,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $63.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $33.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $50.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $173.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $323.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $1.12bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $39.4m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-06-30 | $445.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $0 | us-gaap:DebtCurrent |
| Shareholders' equity | at 2023-06-30 | $555.1m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 30,187 characters.

### Forward-Looking Statements

The information in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve substantial risks, uncertainties, and assumptions. All statements contained herein, other than statements of historical fact, including, without limitation, statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, intentions, expectations, goals and objectives may be forward‑looking statements. The words “anticipates,” “believes,” “could,” “designed,” “estimates,” “expects,” “goal,” “intends,” “may,” “objective,” “plans,” “projects,” “pursuing,” “will,” “would” and similar expressions (including the negatives thereof) are intended to identify forward‑looking statements, although not all forward‑looking statements contain these identifying words. We may not actually achieve the plans, intentions, expectations or objectives disclosed in our forward‑looking statements and the assumptions underlying our forward‑looking statements may prove incorrect. Therefore, you should not place undue reliance on our forward‑looking statements. Actual results or events could differ materially from the plans, intentions, expectations and objectives disclosed in the forward‑looking statements that we make. All written and verbal forward‑looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

Important factors that we believe could cause actual results or events to differ materially from our forward‑looking statements include, but are not limited to, risks related to: lower than expected future royalty revenue from respiratory products partnered with GSK, the commercialization of RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, GIAPREZA®, XERAVA® and XACDURO® in the jurisdictions in which these products have been approved; the strategies, plans and objectives of the Company (including the Company's growth strategy and corporate development initiatives); the timing, manner, and amount of potential capital returns to shareholders; the status and timing of clinical studies, data analysis and communication of results; the potential benefits and mechanisms of action of product candidates; expectations for product candidates through development and commercialization; the timing of regulatory approval of product candidates; and projections of revenue, expenses and other financial items; the impact of the novel coronavirus (“COVID-19”); the timing, manner and amount of capital deployment, including potential capital returns to stockholders; and risks related to the Company’s growth strategy and risks discussed in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023, and as amended on March 20, 2023 (“2022 Form 10-K”), and Item 1A of Part II of our Quarterly Reports on Form 10-Q and below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Item 2 of Part I. All forward-looking statements in this Quarterly Report on Form 10-Q are based on current expectations as of the date hereof and we do not assume any obligation to update any forward-looking statements on account of new information, future events or otherwise, except as required by law.

We encourage you to read our unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. We also encourage you to read Item 1A of Part I of our 2022 Form 10-K and Item 1A of Part II of our Quarterly Reports on Form 10-Q entitled “Risk Factors,” which contain a more complete discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in Item 1A of Part I of our 2022 Form 10-K and Item 1A of Part II of this report, other unknown or unpredictable factors also could affect our results. Therefore, the information in this report should be read together with other reports and documents that we file with the SEC from time to time, including on Form 10-K, Form 10-Q and Form 8-K, which may supplement, modify, supersede or update those risk factors. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.

### OVERVIEW

### Executive Summary

Innoviva, Inc. (and where context requires, together with its subsidiaries referred to as “Innoviva”, the “Company”, or “we” and other similar pronouns) is a company with a portfolio of royalties and innovative healthcare assets. Our royalty portfolio contains respiratory assets partnered with Glaxo Group Limited (“GSK”), including RELVAR®/BREO® ELLIPTA® (fluticasone furoate/vilanterol, “FF/VI”) and ANORO® ELLIPTA® (umeclidinium bromide/ vilanterol, “UMEC/VI”), and up until July 2022,

TRELEGY® ELLIPTA® (the combination FF/UMEC/VI). We sold our 15% ownership interest in Theravance Respiratory Company, LLC (“TRC”) on July 20, 2022, and are no longer entitled to receive royalties on sales of TRELEGY® ELLIPTA® products. Under the Long-Acting Beta2 Agonist (“LABA”) Collaboration Agreement, Innoviva is entitled to receive royalties from GSK on sales of RELVAR®/BREO® ELLIPTA® as follows: 15% on the first $3.0 billion of annual global net sales and 5% for all annual global net sales above $3.0 billion; and royalties from the sales of ANORO® ELLIPTA®, which tier upward at a range from 6.5% to 10%.

We expanded our portfolio of royalties and innovative healthcare assets through the acquisition of Entasis Therapeutics Holdings Inc. (“Entasis”) on July 11, 2022 and the acquisition of La Jolla Pharmaceutical Company (“La Jolla”) on August 22, 2022. Our commercial and marketed products include GIAPREZA® (angiotensin II), approved to increase blood pressure in adults with septic or other distributive shock, and XERAVA® (eravacycline) approved for the treatment of complicated intra-abdominal infections in adults. Our lead product candidate, XACDURO® (formerly known as sulbactam-durlobactam or SUL-DUR), was approved by the United States Food and Drug Administration (“FDA”) on May 23, 2023 and we expect to commence commercial sales of the product later in 2023. Our development pipeline includes medicines for the treatment of bacterial infections. As such, we have a wholly owned robust infectious disease and hospital operating platform, as well as other assets in these areas, such as a large equity stake in Armata Pharmaceuticals, a leader in bacteriophage development with potential use across a range of infectious and other serious diseases. We also have economic interests in other healthcare companies.

Our corporate strategy is currently focused on increasing stockholder value by, among other things, maximizing the potential value of our respiratory assets partnered with GSK, optimizing our operations and augmenting capital allocation. We continue to diversify our royalty management business through actively pursuing opportunistic acquisitions of promising companies and assets in the healthcare industry and enhancing the returns on our capital. In particular, our recent acquisitions of Entasis and La Jolla created a robust hospital and infectious disease platform.

### Second Quarter 2023 and Recent Highlights:

### GSK Net Sales

- Second quarter 2023 net sales of RELVAR®/BREO® ELLIPTA® by GSK were $363.0 million with $149.8 million in net sales from the U.S. market and $213.2 million from non-U.S. markets.
- Second quarter 2023 net sales of ANORO® ELLIPTA® by GSK were $173.3 million with $85.5 million net sales from the U.S. market and $87.8 million from non-U.S. markets.

### Corporate Updates

- During the second quarter of 2023, Innoviva repurchased 775,504 shares of its outstanding common stock for $9.2 million.
- On July 11, 2023, Innoviva’s wholly owned subsidiary, Innoviva Strategic Opportunities, entered into a credit and security agreement with Armata Pharmaceuticals, Inc. (NYSE: ARMP) (“Armata”) and invested $25.0 million to advance Armata’s pipeline of therapeutic phage candidates and support the build-out of its state-of-the art cGMP manufacturing facility.
- On July 11, 2023, Innoviva director, Deborah Birx, resigned from Innoviva Board and joined Armata as Chief Executive Officer.

### Clinical Updates

- On May 23, 2023, Innoviva’s wholly owned subsidiary, Innoviva Specialty Therapeutics, received FDA’s approval of XACDURO® (sulbactam for injection; durlobactam for injection), co-packaged for intravenous use in patients 18 years of age and older for the treatment of hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP) caused by susceptible isolates of *Acinetobacter baumannii-calcoaceticus* complex (*Acinetobacter*). The company is preparing to launch XACDURO® later this year.
- Recruitment is now complete in the registrational Phase 3 Zoliflodacin study. Oral Zoliflodacin is a novel, first-in-class oral antibiotic in development for the treatment of uncomplicated gonorrhea infection. Top-line results for this ongoing Phase 3 trial are expected in late 2023.

### Collaboration Arrangement with GSK

### LABA Collaboration

In November 2002, we entered into the LABA collaboration with GSK to develop and commercialize once-daily LABA products for the treatment of chronic obstructive pulmonary disorder (“COPD”) and asthma (the “LABA Collaboration Agreement”). For the treatment of COPD, the collaboration has developed three combination products:

- RELVAR®/BREO® ELLIPTA® (“FF/VI”) (BREO® ELLIPTA® is the proprietary name in the U.S. and Canada and RELVAR® ELLIPTA® is the proprietary name outside the U.S. and Canada), a once-daily combination medicine consisting of a LABA, vilanterol (VI), and an inhaled corticosteroid (“ICS”), fluticasone furoate (“FF”),
- ANORO® ELLIPTA® (“UMEC/VI”), a once-daily medicine combining a long-acting muscarinic antagonist (“LAMA”), umeclidinium bromide (“UMEC”), with a LABA, vilanterol (VI), and
- TRELEGY® ELLIPTA® (the combination FF/UMEC/VI), a once-daily combination medicine consisting of an ICS, LAMA and LABA.

As a result of the launch and approval of RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA® in the U.S., Japan and Europe, in accordance with the LABA Collaboration Agreement, we paid milestone fees to GSK totaling $220.0 million during the year ended December 31, 2014. Although we have no further milestone payment obligations to GSK pursuant to the LABA Collaboration Agreement, we continue to have ongoing commercialization activities under the LABA Collaboration Agreement, including participation in the joint steering committee that are expected to continue over the life of the agreement. The milestone fees paid to GSK were recognized as capitalized fees, which are being amortized over their estimated useful lives commencing upon the commercial launch of the products.

As mentioned above, on July 20, 2022, we sold our ownership interest in TRC, which received royalty payments from GSK stemming from sales of TRELEGY® ELLIPTA®. We retained our royalty rights with respect to RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®.

### Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no significant changes in our critical accounting policies as described in the Form 10-K for the year ended December 31, 2022 filed with the SEC on February 28, 2023, and as amended on March 20, 2023.

### Factors Affecting Comparability

Our historical financial condition and results of operations for the periods presented may not be comparable, either between periods or going forward due to the factors described below.

- Accounting consolidation of Entasis on February 17, 2022 and purchase of remaining minority interest in Entasis on July 11, 2022,
- Sale of our 15% ownership interest in Theravance Respiratory Company, LLC (“TRC”) on July 20, 2022, and
- Acquisition of La Jolla on August 22, 2022.

Refer to Note 5, “Consolidated Entities and Acquisitions” to our accompanying unaudited consolidated financial statement for more information.

### Results of Operations

### Net Revenue

#### Royalty Revenue

Total royalty revenue, net, as compared to the prior year period, was as follows:

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Royalties - RELVAR/BREO | $54,454 | $59,326 | $(4,872) | (8)% | $105,337 | $115,090 | $(9,753) | (8)% |
| Royalties - ANORO | 11,267 | 9,630 | 1,637 | 17% | 20,698 | 18,072 | 2,626 | 15% |
| Royalties - TRELEGY | — | 42,720 | (42,720) | (100)% | — | 72,029 | (72,029) | (100)% |
| Total royalties | 65,721 | 111,676 | (45,955) | (41)% | 126,035 | 205,191 | (79,156) | (39)% |
| Less: amortization of capitalized fees paid | (3,456) | (3,456) | — | \* | (6,912) | (6,912) | — | \* |
| Total net royalty revenue | $62,265 | $108,220 | $(45,955) | (42)% | $119,123 | $198,279 | $(79,156) | (40)% |

\*Not Meaningful

Total net royalty revenue decreased to $62.3 million and $119.1 million for the three and six months ended June 30, 2023, compared to $108.2 million and $198.3 million, respectively, for the same period a year ago. The decrease of total net royalty revenue was primarily due to the sale of our ownership interest in TRC, which received royalties stemming from sales of TRELEGY® ELLIPTA® in 2022.

#### Net Product Sales

Net product sales recognized for the three months ended June 30, 2023 was $15.7 million, consisting of net sales of GIAPREZA® and XERAVA® for $11.2 million and $4.5 million, respectively. Net product sales recognized for the six months ended June 30, 2023 was $27.2 million, consisting of net sales of GIAPREZA® and XERAVA® for $20.2 million and $7.0 million, respectively.

#### License Revenue

We recognized $8.0 million in license revenue for the first quarter of 2023 as a result of achievement of a regulatory milestone under our license agreement with Everest. We also recognized $3.0 million in license revenue for the second quarter of 2023 as a result of achievement of a regulatory milestone under our license and collaboration agreement with Zai Lab.

### Research and Development

Research and development expenses, as compared to the prior year period, were as follows:

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $14,989 | $13,884 | $1,105 | 8% | $27,577 | $19,722 | $7,855 | 40% |

43

Research and development expenses consist of the following:

*(in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Compensation and related personnel costs | $3,339 | $3,391 | $(52) | (2)% | $6,811 | $5,288 | $1,523 | 29% |
| External services | 10,579 | 9,914 | 665 | 7% | 18,726 | 13,531 | 5,195 | 38% |
| Facilities related | 632 | 563 | 69 | 12% | 1,248 | 815 | 433 | 53% |
| Other | 439 | 16 | 423 | \* | 792 | 88 | 704 | \* |
| Total research and development expense | $14,989 | $13,884 | $1,105 | 8% | $27,577 | $19,722 | $7,855 | 40% |

\*Not Meaningful

Research and development expenses, which are mainly attributable to Entasis’ product development efforts for XACDURO®, were $15.0 million and $27.6 million, for the three and six months ended June 30, 2023, respectively. Research and development expenses for the three and six months ended June 30, 2022 were attributable to the product development efforts of Entasis from February 17, 2022.

### Selling, General & Administrative

Selling, general and administrative expenses, as compared to the prior year period, were as follows:

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $23,542 | $11,782 | $11,760 | 100% | $43,277 | $18,274 | $25,003 | 137% |

Selling, general and administrative expenses increased for the three and six months ended June 30, 2023, compared to the same period in 2022 mainly due to the acquisition of Entasis and La Jolla in 2022.

### Interest and dividend income and other expense, net

Interest and dividend income and other expense, net, as compared to the prior year period, were as follows:

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | ---: |
| Interest and dividend income | $(3,553) | $(724) | $(2,829) | \* | $(6,918) | $(1,046) | $(5,872) | \* |
| Other expense, net | $1,896 | $528 | $1,368 | \* | $3,242 | $778 | $2,464 | 317% |

\*Not Meaningful

Interest and dividend income increased for the three and six months ended June 30, 2023, compared to the same periods a year ago due to higher interest rates and higher average balances of our cash equivalents, money market funds and other interest-bearing investments.

Other expense, net, was primarily expenses incurred by ISP Fund LP.

### Interest Expense

Interest expense, as compared to the prior year period, was as follows:

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest expense | $4,382 | $3,655 | $727 | 20% | $8,809 | $6,665 | $2,144 | 32% |

44

The interest expense included the contractual interest expense and the amortization of debt issuance costs for our 2023 Notes, 2025 Notes and 2028 Notes, as well as effective interest expense on our deferred royalty obligation. Interest expense for the six months ended June 30, 2023 included the amount on the 2023 Notes until the notes were fully paid off on January 15, 2023. Interest expense for the three and six months ended June 30, 2022 included the amount on the 2028 Notes from March 7, 2022, the date of issuance, through June 30, 2022. The increase for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, was mainly due to interest expense on our deferred royalty obligation and a higher average debt balance.

### Loss on Debt Extinguishment

We recognized a loss of $20.7 million due to the total premium payment of $20.4 million and the write-off of $0.3 million debt issuance costs in connection with the repurchase of $144.8 million aggregate principal amount of our 2023 Notes in March 2022.

### Changes in Fair Values of Equity Method Investments and Equity and Long-Term Investments

Changes in fair values of equity and long-term investments, as compared to the prior year period, were as follows:

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | --- |
| Changes in fair values of equity method investments, net | $19,911 | $42,823 | $(22,912) | \* | $4,094 | $54,773 | $(50,679) | \* |
| Changes in fair values of other equity and long-term investments, net | $83 | $15,777 | $(15,694) | \* | $2,247 | $13,238 | $(10,991) | \* |

\*Not Meaningful

The changes in fair values of equity method investments for the three and six months ended June 30, 2023 posted losses mainly due to Armata's lower stock prices in 2023. The changes in fair values of other equity and long-term investments primarily reflected the realized gains and losses and net unrealized gains and losses in our strategic investments in InCarda, Gate, and those investments managed by ISP Fund LP.

### Provision for Income Taxes

We recorded a provision for income tax expense of $4.5 million and $10.8 million for the three and six months ended June 30, 2023, compared to a provision for income tax benefit of $0.9 million and for income tax expense of $6.0 million for the three and six months ended June 30, 2022, respectively. The effective income tax rate for the six months ended June 30, 2023 and 2022 was 25.7% and 4.3%, respectively.

### Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interest represents $28.3 million and $53.4 million for the three and six months ended June 30, 2022, respectively, for the 85% share of net income in TRC for Theravance Biopharma and $7.9 million and $10.9 million for the three and six months ended June 30, 2022, respectively, for the 40% share of net loss in Entasis.

There is no noncontrolling interest in any of our subsidiaries in 2023.

### Liquidity and Capital Resources

### Liquidity

Since our inception, we have financed our operations primarily through private placements and public offerings of equity and debt securities and payments received under collaboration arrangement. For the six months ended June 30, 2023, we generated gross royalty revenues from GSK of $126.0 million, net product sales of $27.2 million and license revenue of $11.0 million. Net cash and cash equivalents totaled $173.0 million, royalties receivables from GSK totaled $65.7 million and accounts receivable associated with our product sales and license revenue totaled $15.3 million as of June 30, 2023.

### Adequacy of Cash Resources to Meet Future Needs

We believe that our cash and cash equivalents will be sufficient to meet our anticipated debt service and operating needs, as well our ongoing share repurchase program, for at least the next 12 months based upon current operating plans and financial forecasts. Our long-term capital requirements will depend on many factors including the amount of our royalty revenues, sales growth of our currently marketed products, timing of regulatory approval of our product candidates and outcome of our acquisitions and strategic investments. If our current operating plans and financial forecasts change, we may require additional funding sooner in the form of public or private equity offerings or debt financings. Furthermore, if in our view favorable financing opportunities arise, we may seek additional funding in the form of public or private equity offerings or debt financings at any time. However, future financing may not be available in amounts or on terms acceptable to us, if at all. This could leave us without adequate financial resources to fund our operations as currently planned. In addition, from time to time we may restructure or reduce our debt, including through privately negotiated repurchases, tender offers, redemptions, amendments, or otherwise, all allowable with the terms of our debt agreements.

### Cash Flows

Cash flows, as compared to the prior year period, were as follows:

*(In thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $63,866 | $177,137 | $(113,271) |
| Net cash used in investing activities | $(35,722) | $(145,678) | $109,956 |
| Net cash (used in) provided by financing activities | $(146,168) | $50,596 | $(196,764) |

### Cash Flows from Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2023 was $63.9 million, consisting primarily of our net income of $36.1 million, adjusted for net non-cash items, which included $13.8 million of amortization of inventory fair value step-up adjustment, $8.8 million of amortization of acquired intangible assets, $7.0 million of amortization of capital fees and depreciation of property and equipment, $6.3 million of net changes in fair value of our investments, partially offset by decreases of $11.0 million in receivables from collaboration arrangement and $4.7 million in inventory.

Net cash provided by operating activities for the six months ended June 30, 2022 was $177.1 million, consisting primarily of our net income of $59.2 million, adjusted for net non-cash items such as $6.0 million of deferred income tax, $7.1 million of depreciation and amortization, $20.7 million of loss on extinguishment of debt, and $68.0 million decrease in the fair value of our equity and long-term investments, offset by $6.9 million of accrued personnel-related expenses and other accrued liabilities, $3.0 million of prepaid expenses and $2.7 million of accounts payable.

### Cash Flows from Investing Activities

Net cash used in investing activities for the six months ended June 30, 2023 of $35.7 million primarily consisted of $35.7 million in purchases of equity and long-term investments and $17.8 million in purchases of equity investments managed by ISP Fund LP. The use of cash for investing activities was partially offset by net proceeds of $15.3 million from the purchases and sales of other investments managed by ISP Fund LP.

Net cash used in investing activities for the six months ended June 30, 2022 of $145.7 million was primarily due to $38.0 million of purchases of equity investments managed by ISP Fund LP, $96.3 million of purchases and sales of other investments managed by ISP Fund LP, net, and $58.7 million investments in Armata, InCarda, and Nanolive, partially offset by $24.3 million of sales of equity investments managed by ISP Fund LP and $23.1 million of cash acquired through the consolidation of Entasis.

### Cash Flows from Financing Activities

Net cash used in financing activities for the six months ended June 30, 2023 of $146.2 million was primarily due to the payments of $96.2 million upon maturity of the 2023 Notes in January 2023 and $50.0 million for the repurchase of common stock under our current stock repurchase program.

Net cash provided by financing activities for the six months ended June 30, 2022 of $50.6 million was primarily due to the net proceeds of $252.5 million from the issuance of the convertible senior notes due in 2028, net of issuance costs, offset with $21.0 million purchase of capped call options associated with the 2028 Notes, $165.1 million for the repurchase of the 2023 Notes, and $16.1 million distributions to noncontrolling interest.

### Contractual Obligations

As of June 30, 2023, our notes payable obligation included $192.5 million related to our 2025 Notes and $261.0 million related to our 2028 Notes, which are due in 2025 and 2028, respectively. Under the terms of the 2025 Notes and 2028 Notes, we will make interest payments of 2.5% and 2.125%, respectively, of outstanding principal. Refer to Note 11, “Debt” to the Consolidated Financial Statements for more information.

Our short-term and long-term obligations also include contractual payments related to our operating leases were $3.7 million, with approximately $0.8 million payable through December 31, 2023 and approximately $1.3 million payable in each of the years 2024 and 2025. Refer to Note 12, “Commitments and Contingencies” to the condensed consolidated financial statements for more information.

As part of our acquisition of La Jolla, we recognized its deferred royalty obligation in connection with La Jolla Royalty Agreement with HCR. Under the terms of the Agreement, HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA® until either January 1, 2031 or when the maximum aggregate royalty payments have been made, whichever occurs first. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. The current maximum royalty rate is 14%. Starting January 1, 2024, the maximum royalty rate may increase by an additional 4%, if an agreed-upon, cumulative net product sales threshold has not been met. The La Jolla Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million.

Additionally, we have certain contingent payment obligations under various in-license agreements which we are required to make royalty payments or milestone payments upon successful completion and achievement of certain milestones. Refer to Note 4, “License and Collaboration Arrangements” to the Condensed Consolidated Financial Statements for more information.

We also enter into agreements in the normal course of business with vendors for manufacturing, clinical trials and preclinical studies, and other services and products for operating purposes.

## Market risk

As filed, 1,161 characters.

As of June 30, 2023, our debt bears fixed interest rates and we had no outstanding debt with variable interest rate. Our cash flows on these debt obligations are not subject to variability as a result of changes in interest rates.

We are exposed to changes in the fair value of certain or our investments in equity and debt securities. Fluctuations in the underlying fair value of the investments could result in material gains or losses. Refer to Note 6 “Equity and Long-Term Investments and Fair Value Measurements” to the Condensed Consolidated Financial Statements for more information.

Inflation has increased in recent periods and could continue to increase for the near future. Inflationary factors, such as increases in the cost of our raw materials, supplies, interest rates and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future if inflation rates continue to rise. Significant adverse changes in inflation and prices in the future could result in material losses.

## Controls and procedures

As filed, 3,048 characters.

#### Evaluation of Disclosure Controls and Procedures

We conducted an evaluation as of June 30, 2023, under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures, which are defined under SEC rules as controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and controls and procedures that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decision regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance levels.

#### Limitations on the Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all frauds. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Innoviva have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

#### Changes in Internal Control over Financial Reporting

We completed our acquisitions of Entasis and La Jolla in 2022. We continue the process of integrating the acquired operations and processes into our internal control environment and implementing necessary changes to our internal control over financial reporting, including, but not limited, to the creation of new controls related to inventory management, research and development activities and product sales.

Other than the above, there have been no material changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 205 characters.

Our business is subject to a number of risks, including those identified in Item 1A of Part I of our 2022 Form 10-K. There have been no material changes to the risk factors described in our 2022 Form 10-K.

Filed Aug 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-037296. Last ingested by Listed: Oct 27, 2026, 17:26 ET. No prices; not investment advice.