Table of Contents

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 September 30, 20202021

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
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

1350 Old Bayshore Highway Suite 400

Burlingame, CA94010

(Address of Principal Executive Offices)

(650) 238-9600

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

INVA

INVA

The NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act.

Large accelerated filer ☒

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

The number of shares of registrant’s common stock outstanding on October 19, 202018, 2021 was 101,391,634.69,492,201.


Table of Contents

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, 20202021 (Unaudited) and December 31, 20192020

3

Unaudited Consolidated Statements of Income for the Three and Nine Months ended September 30, 20202021 and 20192020

4

Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months ended September 30, 20202021 and 20192020

5

Unaudited Consolidated Statements of Stockholders’ Equity for the Three and Nine Months ended September 30, 20202021 and 20192020

6

Unaudited Consolidated Statements of Cash Flows for the Nine Months ended September 30, 20202021 and 20192020

8

Notes to Unaudited Consolidated Financial Statements

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

1821

Item 3. Quantitative and Qualitative Disclosures About Market Risk

2527

Item 4. Controls and Procedures

2527

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

2627

Item 1A. Risk Factors

2628

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

2628

Item 3. Defaults Upon Senior Securities

2628

Item 4. Mine Safety Disclosure

2728

Item 5. Other Information

2728

Item 6. Exhibits

2729

Signatures

2830

Exhibits

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INNOVIVA, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

September 30, 

December 31, 

    

2020

    

2019

(unaudited)

*

Assets

Current assets:

Cash and cash equivalents

$

479,193

$

278,096

Short-term marketable securities

 

0

 

72,749

Related party receivables from collaborative arrangements

 

92,150

 

79,427

Prepaid expenses and other current assets

 

698

 

962

Total current assets

 

572,041

 

431,234

Property and equipment, net

 

33

 

33

Equity investments

111,745

0

Capitalized fees paid to a related party, net

 

128,708

 

139,076

Deferred tax assets, net

109,490

154,171

Other assets

 

239

 

312

Total assets

$

922,256

$

724,826

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

623

$

10

Accrued personnel-related expenses

 

384

 

647

Accrued interest payable

 

1,668

 

4,152

Other accrued liabilities

 

1,223

 

562

Total current liabilities

 

3,898

 

5,371

Long-term debt, net of discount and issuance costs

 

383,350

 

377,120

Other long-term liabilities

136

219

Commitments and contingencies (Note 8)

Stockholders’ equity:

Preferred stock: $0.01 par value, 230 shares authorized, 0 shares issued and outstanding

 

0

 

0

Common stock: $0.01 par value, 200,000 shares authorized, 101,391 and 101,288 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

1,014

 

1,013

Additional paid-in capital

 

1,260,447

 

1,258,859

Accumulated other comprehensive income

 

0

 

27

Accumulated deficit

 

(775,905)

 

(946,404)

Total Innoviva stockholders’ equity

485,556

313,495

Noncontrolling interest

49,316

28,621

Total stockholders’ equity

 

534,872

 

342,116

Total liabilities and stockholders’ equity

$

922,256

$

724,826

*Consolidated balance sheet as of December 31, 2019 has been derived from audited consolidated financial statements.

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

*

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

135,115

 

 

$

246,487

 

Related party receivables from collaborative arrangements

 

 

101,271

 

 

 

93,931

 

Prepaid expenses and other current assets

 

 

542

 

 

 

1,640

 

Total current assets

 

 

236,928

 

 

 

342,058

 

Property and equipment, net

 

 

15

 

 

 

28

 

Equity and long-term investments

 

 

507,116

 

 

 

438,258

 

Capitalized fees paid to a related party, net

 

 

114,885

 

 

 

125,253

 

Deferred tax assets, net

 

 

28,159

 

 

 

93,759

 

Other assets

 

 

136

 

 

 

214

 

Total assets

 

$

887,239

 

 

$

999,570

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

89

 

 

$

66

 

Accrued personnel-related expenses

 

 

488

 

 

 

490

 

Accrued interest payable

 

 

1,668

 

 

 

4,152

 

Other accrued liabilities

 

 

880

 

 

 

1,402

 

Total current liabilities

 

 

3,125

 

 

 

6,110

 

Long-term debt, net of discount and issuance costs

 

 

392,295

 

 

 

385,517

 

Other long-term liabilities

 

 

14

 

 

 

106

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock: $0.01 par value, 230 shares authorized,
   
0 shares issued and outstanding

 

 

0

 

 

 

0

 

Common stock: $0.01 par value, 200,000 shares authorized,
   
69,492 and 101,392 issued and outstanding as of
   September 30, 2021 and December 31, 2020 respectively

 

 

695

 

 

 

1,014

 

Treasury stock: at cost, 32,005 and 0 shares at
   September 30, 2021 and December 31, 2020, respectively

 

 

(393,829

)

 

 

0

 

Additional paid-in capital

 

 

1,262,438

 

 

 

1,260,900

 

Accumulated deficit

 

 

(466,493

)

 

 

(722,002

)

Total Innoviva stockholders’ equity

 

 

402,811

 

 

 

539,912

 

Noncontrolling interest

 

 

88,994

 

 

 

67,925

 

Total stockholders’ equity

 

 

491,805

 

 

 

607,837

 

Total liabilities and stockholders’ equity

 

$

887,239

 

 

$

999,570

 

*
Consolidated balance sheet as of December 31, 2020 has been derived from audited consolidated financial statements.

See accompanying notes to consolidated financial statements.

3


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Table of Contents

INNOVIVA, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

Revenue:

Royalty revenue from a related party, net of amortization of capitalized fees paid to a related party of $3,456 in the three months ended September 30, 2020 and 2019, and $10,368 in the nine months ended September 30, 2020 and 2019

$

88,694

$

65,755

$

236,318

$

185,045

Revenue from collaborative arrangements with a related party

0

0

10,000

0

Total net revenue

88,694

65,755

246,318

185,045

Operating expenses:

Research and development

 

1,010

 

0

 

1,569

 

0

General and administrative

 

3,254

 

4,962

 

8,413

 

12,324

Total operating expenses

 

4,264

 

4,962

 

9,982

 

12,324

Income from operations

 

84,430

 

60,793

 

236,336

 

172,721

Other income (expense), net

(13)

(115)

85

(122)

Interest income

 

41

 

1,624

 

1,501

 

4,002

Interest expense

 

(4,603)

 

(4,693)

 

(13,680)

 

(13,971)

Changes in fair values of equity investments

(29,368)

0

39,245

0

Income before income taxes

50,487

57,609

263,487

162,630

Income tax expense, net

8,866

10,558

44,689

29,499

Net income

41,621

47,051

218,798

133,131

Net income attributable to noncontrolling interest

13,403

7,242

48,299

21,792

Net income attributable to Innoviva stockholders

$

28,218

$

39,809

$

170,499

$

111,339

Basic net income per share attributable to Innoviva stockholders

$

0.28

$

0.39

$

1.68

$

1.10

Diluted net income per share attributable to Innoviva stockholders

$

0.26

$

0.36

$

1.53

$

1.01

Shares used to compute Innoviva basic and diluted net income per share:

Shares used to compute basic net income per share

101,358

101,191

101,306

101,134

Shares used to compute diluted net income per share

113,572

113,415

113,543

113,394

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Royalty revenue from a related party, net of amortization of
   capitalized fees paid to a related party of $
3,456 in the
   three months ended September 30, 2021 and 2020,
   and $
10,368 in the nine months ended September 30, 2021
   and 2020

 

$

97,862

 

 

$

88,694

 

 

$

284,186

 

 

$

236,318

 

Revenue from collaborative arrangements
   with a related party

 

 

0

 

 

 

0

 

 

 

0

 

 

 

10,000

 

Total net revenue

 

 

97,862

 

 

 

88,694

 

 

 

284,186

 

 

 

246,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

449

 

 

 

1,010

 

 

 

536

 

 

 

1,569

 

General and administrative

 

 

2,860

 

 

 

3,254

 

 

 

13,074

 

 

 

8,413

 

Total operating expenses

 

 

3,309

 

 

 

4,264

 

 

 

13,610

 

 

 

9,982

 

Income from operations

 

 

94,553

 

 

 

84,430

 

 

 

270,576

 

 

 

236,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

(652

)

 

 

(13

)

 

 

(2,036

)

 

 

85

 

Interest income

 

 

453

 

 

 

41

 

 

 

503

 

 

 

1,501

 

Interest expense

 

 

(4,790

)

 

 

(4,603

)

 

 

(14,229

)

 

 

(13,680

)

Changes in fair values of equity
   and long-term investments, net

 

 

33,613

 

 

 

(29,368

)

 

 

133,973

 

 

 

39,245

 

Income before income taxes

 

 

123,177

 

 

 

50,487

 

 

 

388,787

 

 

 

263,487

 

Income tax expense, net

 

 

20,531

 

 

 

8,866

 

 

 

65,600

 

 

 

44,689

 

Net income

 

 

102,646

 

 

 

41,621

 

 

 

323,187

 

 

 

218,798

 

Net income attributable to
   noncontrolling interest

 

 

30,208

 

 

 

13,403

 

 

 

67,678

 

 

 

48,299

 

Net income attributable to
   Innoviva stockholders

 

$

72,438

 

 

$

28,218

 

 

$

255,509

 

 

$

170,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share attributable
   to Innoviva stockholders

 

$

1.04

 

 

$

0.28

 

 

$

2.96

 

 

$

1.68

 

Diluted net income per share attributable
   to Innoviva stockholders

 

$

0.90

 

 

$

0.26

 

 

$

2.63

 

 

$

1.53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used to compute Innoviva basic and diluted
     net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Shares used to compute basic net income per share

 

 

69,458

 

 

 

101,358

 

 

 

86,298

 

 

 

101,306

 

Shares used to compute diluted net income per share

 

 

81,699

 

 

 

113,572

 

 

 

98,536

 

 

 

113,543

 

See accompanying notes to consolidated financial statements.

4


4

Table of Contents

INNOVIVA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

Net income

$

41,621

$

47,051

$

218,798

$

133,131

Unrealized gain (loss) on marketable securities, net

2

(8)

(27)

28

Comprehensive income

41,623

47,043

218,771

133,159

Comprehensive income attributable to noncontrolling interest

13,403

7,242

48,299

21,792

Comprehensive income attributable to Innoviva stockholders

$

28,220

$

39,801

$

170,472

$

111,367

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

102,646

 

 

$

41,621

 

 

$

323,187

 

 

$

218,798

 

Unrealized loss on marketable securities, net

 

 

0

 

 

 

2

 

 

 

0

 

 

 

(27

)

Comprehensive income

 

 

102,646

 

 

 

41,623

 

 

 

323,187

 

 

 

218,771

 

Comprehensive income attributable to noncontrolling interest

 

 

30,208

 

 

 

13,403

 

 

 

67,678

 

 

 

48,299

 

Comprehensive income attributable to Innoviva stockholders

 

$

72,438

 

 

$

28,220

 

 

$

255,509

 

 

$

170,472

 

See accompanying notes to consolidated financial statements.

5


5

Table of Contents

INNOVIVA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

Nine Months Ended September 30, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Noncontrolling

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Interest

    

Equity

Balance as of December 31, 2019

 

101,288

$

1,013

$

1,258,859

$

27

$

(946,404)

$

28,621

$

342,116

Distributions to noncontrolling interest

 

0

 

0

 

0

 

0

 

0

 

(15,810)

 

(15,810)

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

 

32

 

0

 

170

 

0

 

0

 

0

 

170

Stock-based compensation

 

0

 

0

 

435

 

0

 

0

 

0

 

435

Net income

 

0

 

0

 

0

 

0

 

65,437

 

13,515

 

78,952

Other comprehensive income

 

0

 

0

 

0

 

6

 

0

 

0

 

6

Balance as of March 31, 2020

 

101,320

$

1,013

$

1,259,464

$

33

$

(880,967)

$

26,326

$

405,869

Equity activity of noncontrolling interest from a consolidated variable interest entity

0

0

0

0

0

350

350

Distributions to noncontrolling interest

 

0

 

0

 

0

 

0

 

0

 

(12,152)

 

(12,152)

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

 

72

 

2

 

178

 

0

 

0

 

0

 

180

Stock-based compensation

 

0

 

0

 

375

 

0

 

0

 

0

 

375

Net income

 

0

 

0

 

0

 

0

 

76,844

 

21,381

 

98,225

Other comprehensive income

 

0

 

0

 

0

 

(35)

 

0

 

0

 

(35)

Balance as of June 30, 2020

 

101,392

$

1,015

$

1,260,017

$

(2)

$

(804,123)

$

35,905

$

492,812

Equity activity of noncontrolling interest from a consolidated variable interest entity

0

0

0

0

0

8

8

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

 

(1)

 

(1)

 

(11)

 

0

 

0

 

0

 

(12)

Stock-based compensation

 

0

 

0

 

441

 

0

 

0

 

0

 

441

Net income

 

0

 

0

 

0

 

0

 

28,218

 

13,403

 

41,621

Other comprehensive income

 

0

 

0

 

0

 

2

 

0

 

0

 

2

Balance as of September 30, 2020

 

101,391

$

1,014

$

1,260,447

$

0

$

(775,905)

$

49,316

$

534,872

6

Table of Contents

Nine Months Ended September 30, 2019

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Noncontrolling

Stockholders’

    

Shares

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Interest

    

Equity

Balance as of December 31, 2018

101,098

$

1,011

$

1,256,267

$

(3)

$

(1,103,692)

$

5,469

$

159,052

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

85

1

253

0

0

0

254

Stock-based compensation

0

0

605

0

0

0

605

Net income

0

0

0

0

33,790

6,229

40,019

Other comprehensive income

0

0

0

13

0

0

13

Balance as of March 31, 2019

101,183

$

1,012

$

1,257,125

$

10

$

(1,069,902)

$

11,698

$

199,943

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

89

1

200

0

0

0

201

Stock-based compensation

0

0

474

0

0

0

474

Net income

0

0

0

0

37,740

8,321

46,061

Other comprehensive income

0

0

0

23

0

0

23

Balance as of June 30, 2019

101,272

$

1,013

$

1,257,799

$

33

$

(1,032,162)

$

20,019

$

246,702

Distributions to noncontrolling interest

0

0

0

0

0

(10,553)

(10,553)

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

7

0

82

0

0

0

82

Stock-based compensation

0

0

489

0

0

0

489

Net income

0

0

0

0

39,809

7,242

47,051

Other comprehensive income

0

0

0

(8)

0

0

(8)

Balance as of September 30, 2019

101,279

$

1,013

$

1,258,370

$

25

$

(992,353)

$

16,708

$

283,763

(Unaudited)

 

 

Nine Months Ended September 30, 2021

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Treasury Stock

 

 

Noncontrolling

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Interest

 

 

Equity

 

Balance as of December 31, 2020

 

 

101,392

 

 

$

1,014

 

 

$

1,260,900

 

 

$

0

 

 

$

(722,002

)

 

 

0

 

 

$

0

 

 

$

67,925

 

 

$

607,837

 

Distributions to noncontrolling interest

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

(21,285

)

 

 

(21,285

)

Equity activity of noncontrolling interest
   from a consolidated variable interest entity

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

8

 

 

 

8

 

Exercise of stock options, and issuance of
   common stock units and stock awards,
   net of repurchase of shares to satisfy
   tax withholding

 

 

16

 

 

 

0

 

 

 

(25

)

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

0

 

 

 

(25

)

Stock-based compensation

 

 

 

 

 

0

 

 

 

451

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

0

 

 

 

451

 

Net income

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

94,123

 

 

 

 

 

 

0

 

 

 

15,572

 

 

 

109,695

 

Balance as of March 31, 2021

 

 

101,408

 

 

$

1,014

 

 

$

1,261,326

 

 

$

0

 

 

$

(627,879

)

 

 

0

 

 

$

0

 

 

$

62,220

 

 

$

696,681

 

Distributions to noncontrolling interest

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

(20,161

)

 

 

(20,161

)

Equity activity of noncontrolling interest
   from a consolidated variable interest entity

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

8

 

 

 

8

 

Exercise of stock options, and issuance of
   common stock units and stock awards,
   net of repurchase of shares to satisfy
   tax withholding

 

 

92

 

 

 

1

 

 

 

49

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

0

 

 

 

50

 

Repurchase of common stock

 

 

(32,005

)

 

 

(320

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

32,005

 

 

 

(393,829

)

 

 

0

 

 

 

(394,149

)

Stock-based compensation

 

 

 

 

 

0

 

 

 

470

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

0

 

 

 

470

 

Net income

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

88,948

 

 

 

 

 

 

0

 

 

 

21,898

 

 

 

110,846

 

Balance as of June 30, 2021

 

 

69,495

 

 

$

695

 

 

$

1,261,845

 

 

$

0

 

 

$

(538,931

)

 

 

32,005

 

 

$

(393,829

)

 

$

63,965

 

 

$

393,745

 

Distributions to noncontrolling interest

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

(4,912

)

 

 

(4,912

)

Equity activity of noncontrolling interest
   from a consolidated variable interest entity

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

(267

)

 

 

(267

)

Exercise of stock options, and issuance of
   common stock units and stock awards,
   net of repurchase of shares to satisfy
   tax withholding

 

 

(3

)

 

 

0

 

 

 

51

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

0

 

 

 

51

 

Stock-based compensation

 

 

 

 

 

0

 

 

 

542

 

 

 

0

 

 

 

0

 

 

 

 

 

 

0

 

 

 

0

 

 

 

542

 

Net income

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

72,438

 

 

 

 

 

 

0

 

 

 

30,208

 

 

 

102,646

 

Balance as of September 30, 2021

 

 

69,492

 

 

$

695

 

 

$

1,262,438

 

 

$

0

 

 

$

(466,493

)

 

 

32,005

 

 

$

(393,829

)

 

$

88,994

 

 

$

491,805

 

6


 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Noncontrolling

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Interest

 

 

Equity

 

Balance as of December 31, 2019

 

 

101,288

 

 

$

1,013

 

 

$

1,258,859

 

 

$

27

 

 

$

(946,404

)

 

$

28,621

 

 

$

342,116

 

Distributions to noncontrolling interest

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(15,810

)

 

 

(15,810

)

Exercise of stock options, and issuance of
   common stock units and stock awards,
   net of repurchase of shares to satisfy
   tax withholding

 

 

32

 

 

 

0

 

 

 

170

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

170

 

Stock-based compensation

 

 

 

 

 

0

 

 

 

435

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

435

 

Net income

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

65,437

 

 

 

13,515

 

 

 

78,952

 

Other comprehensive income

 

 

 

 

 

0

 

 

 

0

 

 

 

6

 

 

 

0

 

 

 

0

 

 

 

6

 

Balance as of March 31, 2020

 

 

101,320

 

 

$

1,013

 

 

$

1,259,464

 

 

$

33

 

 

$

(880,967

)

 

$

26,326

 

 

$

405,869

 

Equity activity of noncontrolling interest
   from a consolidated variable interest entity

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

350

 

 

 

350

 

Distributions to noncontrolling interest

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(12,152

)

 

 

(12,152

)

Exercise of stock options, and issuance of
   common stock units and stock awards,
   net of repurchase of shares to satisfy
   tax withholding

 

 

72

 

 

 

2

 

 

 

178

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

180

 

Stock-based compensation

 

 

0

 

 

 

0

 

 

 

375

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

375

 

Net income

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

76,844

 

 

 

21,381

 

 

 

98,225

 

Other comprehensive income

 

 

 

 

 

0

 

 

 

0

 

 

 

(35

)

 

 

0

 

 

 

0

 

 

 

(35

)

Balance as of June 30, 2020

 

 

101,392

 

 

$

1,015

 

 

$

1,260,017

 

 

$

(2

)

 

$

(804,123

)

 

$

35,905

 

 

$

492,812

 

Equity activity of noncontrolling interest
   from a consolidated variable interest entity

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

8

 

 

 

8

 

Exercise of stock options, and issuance of
   common stock units and stock awards,
   net of repurchase of shares to satisfy
   tax withholding

 

 

(1

)

 

 

(1

)

 

 

(11

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(12

)

Stock-based compensation

 

 

 

 

 

0

 

 

 

441

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

441

 

Net income

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

28,218

 

 

 

13,403

 

 

 

41,621

 

Other comprehensive income

 

 

 

 

 

0

 

 

 

0

 

 

 

2

 

 

 

0

 

 

 

0

 

 

 

2

 

Balance as of September 30, 2020

 

 

101,391

 

 

$

1,014

 

 

$

1,260,447

 

 

$

0

 

 

$

(775,905

)

 

$

49,316

 

 

$

534,872

 

See accompanying notes to consolidated financial statements.

7


7

Table of Contents

INNOVIVA, INC.

CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30, 

    

2020

    

2019

  

Cash flows from operating activities

Net income

$

218,798

$

133,131

Adjustments to reconcile net income to net cash provided by operating activities:

Deferred income taxes

44,689

29,499

Depreciation and amortization

 

10,382

 

10,400

Stock-based compensation

 

1,251

 

1,568

Amortization of debt discount and issuance costs

6,230

5,789

Amortization of discount on short-term investments

(343)

(1,739)

Amortization of lease guarantee

135

(243)

Loss on write-off of property and equipment

0

104

Changes in fair values of equity investments

(39,245)

0

Other non-cash items

14

0

Changes in operating assets and liabilities:

Receivables from collaborative arrangements

 

(12,723)

 

14,075

Prepaid expenses and other current assets

 

264

 

466

Other assets

 

0

 

(11)

Accounts payable

 

613

 

24

Accrued personnel-related expenses and other accrued liabilities

 

252

 

107

Accrued interest payable

 

(2,484)

 

(2,491)

Other long-term liabilities

 

0

 

(126)

Net cash provided by operating activities

 

227,833

190,553

Cash flows from investing activities

Maturities of marketable securities

 

86,000

 

160,925

Purchases of marketable securities

 

(12,943)

 

(230,922)

Purchases of equity investments

 

(72,500)

 

0

Purchases of property and equipment

 

(13)

 

0

Net cash provided by (used in) investing activities

 

544

 

(69,997)

Cash flows from financing activities

Repurchase of shares to satisfy tax withholding

(83)

(81)

Payments of cash dividends to stockholders

 

0

 

(11)

Proceeds from issuances of common stock, net

421

618

Net proceeds from the issuance of variable interest entity's equity

344

0

Distributions to noncontrolling interest

(27,962)

(10,553)

Net cash used in financing activities

 

(27,280)

 

(10,027)

Net increase in cash and cash equivalents

 

201,097

 

110,529

Cash and cash equivalents at beginning of period

 

278,096

 

62,417

Cash and cash equivalents at end of period

$

479,193

$

172,946

Supplemental disclosure of cash flow information

Cash paid for interest

$

9,933

$

10,674

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

323,187

 

 

$

218,798

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Deferred income taxes

 

 

65,600

 

 

 

44,689

 

Depreciation and amortization

 

 

10,376

 

 

 

10,382

 

Stock-based compensation

 

 

1,463

 

 

 

1,251

 

Amortization of debt discount and issuance costs

 

 

6,778

 

 

 

6,230

 

Amortization of discount on short-term investments

 

 

0

 

 

 

(343

)

Amortization of lease guarantee

 

 

0

 

 

 

135

 

Changes in fair values of equity and long-term investments, net

 

 

(132,485

)

 

 

(39,245

)

Other non-cash items

 

 

(251

)

 

 

14

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables from collaborative arrangements

 

 

(7,340

)

 

 

(12,723

)

Prepaid expenses and other current assets

 

 

1,098

 

 

 

264

 

Accounts payable

 

 

23

 

 

 

613

 

Accrued personnel-related expenses and other accrued liabilities

 

 

(533

)

 

 

252

 

Accrued interest payable

 

 

(2,484

)

 

 

(2,484

)

Net cash provided by operating activities

 

 

265,432

 

 

 

227,833

 

Cash flows from investing activities

 

 

 

 

 

 

Maturities of marketable securities

 

 

0

 

 

 

86,000

 

Purchases of marketable securities

 

 

0

 

 

 

(12,943

)

Purchases of equity and long-term investments

 

 

(46,373

)

 

 

(72,500

)

Distributions of equity and long-term investments

 

 

110,000

 

 

 

0

 

Purchases of property and equipment

 

 

0

 

 

 

(13

)

Net cash provided by investing activities

 

 

63,627

 

 

 

544

 

Cash flows from financing activities

 

 

 

 

 

 

Repurchase of common stock

 

 

(394,149

)

 

 

0

 

Distributions to noncontrolling interest

 

 

(46,358

)

 

 

(27,962

)

Repurchase of shares to satisfy tax withholding

 

 

(47

)

 

 

(83

)

Proceeds from issuances of common stock, net

 

 

123

 

 

 

421

 

Net proceeds from the issuance of variable interest entity’s equity

 

 

0

 

 

 

344

 

Net cash used in financing activities

 

 

(440,431

)

 

 

(27,280

)

Net increase (decrease) in cash and cash equivalents

 

 

(111,372

)

 

 

201,097

 

Cash and cash equivalents at beginning of period

 

 

246,487

 

 

 

278,096

 

Cash and cash equivalents at end of period

 

$

135,115

 

 

$

479,193

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

9,933

 

 

$

9,933

 

See accompanying notes to consolidated financial statements.

8


Table of Contents

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Operations and Summary of Significant Accounting Policies

Description of Operations

Innoviva Inc. (referred to as "Innoviva"“Innoviva”, the "Company"“Company”, or "we"“we” and other similar pronouns) is a company with a portfolio of royalties that includesand other healthcare assets. Our royalty portfolio contains respiratory assets partnered with Glaxo Group Limited (“GSK”), including RELVAR®/BREO® ELLIPTA® (fluticasone furoate/ vilanterol, “FF/VI”), ANORO® ELLIPTA® (umeclidinium bromide/ vilanterol, “UMEC/VI”) and TRELEGY® ELLIPTA® (the combination FF/UMEC/VI). 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%15% on the first $3.0$3.0 billion of annual global net sales and 5%5% for all annual global net sales above $3.0$3.0 billion; and royalties from the sales of ANORO® ELLIPTA®, which tier upward at a range from 6.5%6.5% to 10%10%. Innoviva is also entitled to 15%15% of royalty payments made by GSK under its agreements originally entered into with us, and since assigned to Theravance Respiratory Company, LLC (“TRC”), including TRELEGY® ELLIPTA® and any other product or combination of products that may be discovered or developed in the future under the LABA Collaboration Agreement and the Strategic Alliance Agreement with GSK (referred to herein as the “GSK Agreements”), which have been assigned to TRC other than RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In our opinion, the unaudited consolidated financial statements have been prepared on the same basis as audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of our financial position, results of operations, comprehensive income and cash flows. The interim results are not necessarily indicative of the results of operations to be expected for the year ending December 31, 20202021 or any other period.

The accompanying unaudited consolidated financial statements include the accounts of Innoviva, our wholly-owned subsidiaries and certain variable interest entities for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated.eliminated in consolidation. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interest in our unaudited consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the Securities and Exchange Commission (“SEC”) on February 19, 25, 2021 (“2020 and as amended on February 21, 2020 (“2019 Form 10-K”).

Variable Interest Entities

We evaluate our ownership, contractual and other interest in the entities that we invest in to determine if they are variable interest entities (“VIEs”VIE”),. We evaluate whether we have a variable interest in those entities and the nature and extent of those interests. Such evaluation is performed continually throughout the entire period when we stay involved with these entities. Based on our evaluation, if we determine we are the primary beneficiary of a VIE, we consolidate the entity’s financial results intoentity in our financial statements.

We consolidate the financial results of TRC and Pulmoquine Therapeutics, Inc. (“Pulmoquine”), which we have determined to be VIEs, because we have the power to direct the economically significant activities of these entities and the obligation to absorb losses of, or the right to receive benefits from them, and we are the primary beneficiary of the entities.

9

Equity Investments

We invest from time to time in equity securities of private or public companies. If we determine that we have control over these companies under either voting or VIE models, we include them in our consolidated financial statements. If we determine that we do not have control over these companies under either voting or VIE models, we then determine if we have an ability to exercise significant influence via voting interests, board representation or other business relationships.

9


We may account for the equity investments where we exercise significant influence using either an equity method of accounting or at fair value by electing the fair value option under Accounting Standards Codification ("ASC"(“ASC”) Topic 825, Financial Instruments. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method, we apply it to all our financial interests in the same entity (equity and debt, including guarantees) that are eligible items. All gains and losses from fair value changes, unrealized and realized, are presented as changes in fair values of equity and long-term investments, net on the consolidated statements of income.

If we conclude that we do not have an ability to exercise significant influence over an investee, we may elect to account for an equity security without a readily determinable fair value using athe measurement alternative.alternative described in ASC Topic 825. This measurement alternative allows us to measure the equity investment at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Revenue Recognition

AsRevenue is recognized when our customer obtains control of September 30, 2020,promised goods or services, in an amount that reflects the consideration which we accountedexpect to receive in exchange for those goods or services. Revenue is recognized through a five-step process: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price for the contract; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue as a performance obligation is satisfied.

We recognize the royalty revenue on net sales of products with respect to which we have contractual royalty rights in the period in which the royalties are earned. The net sales reports provided by our equity investmentspartner are based on its methodology and assumptions to estimate rebates and returns, which it monitors and adjusts regularly in common stocklight of contractual and warrantslegal obligations, historical trends, past experience and projected market conditions. Our partner may make significant adjustments to its sales based on actual results recorded, which could cause our royalty revenue to fluctuate. We have the ability to conduct periodic royalty audits to evaluate the information provided by our partner. Royalties are recognized net of Armata Pharmaceuticals, Inc. (NYSE American: ARMP) (“Armata ")amortization of capitalized fees associated with any approval and Entasis Therapeutics Holdings Inc. (NASDAQ: ETTX) ("Entasis”) at fair value by electing the fair value option and presented the investments as equity investments on the consolidated balance sheets.launch milestone payments made to GSK.

Accounting Pronouncement Adopted by the Company

In June 2016,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as clarified in subsequent amendments to the initial guidance (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecast. ASC 326 must be adopted using a modified retrospective approach with a cumulative effect adjustment as of the beginning of the reporting period in which the guidance is adopted. Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We adopted Topic 326 effective January 1, 2020. The adoption did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards or Updates Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We are currentlyadopted ASU 2019-12 effective January 1, 2021. The adoption did not have a material impact on our consolidated financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements. This ASU improves the codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the process of evaluatingnotes to financial statements is codified in the effectsdisclosure section of the provisions ofcodification. The ASU 2019-12also clarifies various topics in the codification so that entities can apply guidance more consistently. The ASU is effective for fiscal years beginning after December 15, 2020. We adopted ASU 2020-10 effective January 1, 2021. The adoption did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards or Updates Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity'sEntity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity'sEntity’s Own Equity"Equity, which is intended to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20 Debt-Debt with Conversion and Other Options, for convertible instruments. The pronouncementASU is effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years beginning after December 15, 2021, with early adoption permitted. We are currently in the process of evaluating the effects of the provisions of ASU 2020-06 on our consolidated financial statements.

2. Net Income Per Share

Basic net income per share attributable to Innoviva stockholders is computed by dividing net income attributable to Innoviva stockholders by the weighted-average number of shares of common stock outstanding. Diluted net income per share attributable to Innoviva stockholders is computed by dividing net income attributable to Innoviva stockholders by the weighted-average number of

10


shares of common stock and dilutive potential common stock equivalents then outstanding. Dilutive potential common stock equivalents include the assumed exercise, vesting and issuance of employee stock awards using the treasury stock method, as well as common stock issuable upon assumed conversion of our convertible subordinated notes due 2023 (the “2023 Notes”) using the if converted method.

10

Our convertible senior notes due 2025 (the “2025 Notes”) are convertible, based on the applicable conversion rate, into cash, shares of our common stock or a combination thereof, at our election. Our current intent is to settle the principal amount of the 2025 Notes in cash upon conversion. The impact of the assumed conversion premium to diluted net income per share is computed using the treasury stock method. As the average market price per share of our common stock as reported on The Nasdaq Global Select Market was lower than the initial conversion price of $17.26$17.26 per share, there was 0 dilutive effect of the assumed conversion premium for the three and nine months ended September 30, 2021 and 2020, and 2019, respectively.

The following table shows the computation of basic and diluted net income per share for the three and nine months ended September 30, 20202021 and 2019:2020:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Innoviva stockholders, basic

 

$

72,438

 

 

$

28,218

 

 

$

255,509

 

 

$

170,499

 

Add: interest expense on 2023 Notes

 

 

1,186

 

 

 

1,171

 

 

 

3,553

 

 

 

3,535

 

Net income attributable to Innoviva stockholders, diluted

 

$

73,624

 

 

$

29,389

 

 

$

259,062

 

 

$

174,034

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute basic net income
   per share attributable to Innoviva stockholders

 

 

69,458

 

 

 

101,358

 

 

 

86,298

 

 

 

101,306

 

Dilutive effect of 2023 Notes

 

 

12,189

 

 

 

12,189

 

 

 

12,189

 

 

 

12,189

 

Dilutive effect of options and awards granted under equity
   incentive plan and employee stock purchase plan

 

 

52

 

 

 

25

 

 

 

49

 

 

 

48

 

Weighted-average shares used to compute diluted net income
   per share attributable to Innoviva stockholders

 

 

81,699

 

 

 

113,572

 

 

 

98,536

 

 

 

113,543

 

Net income per share attributable to Innoviva stockholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.04

 

 

$

0.28

 

 

$

2.96

 

 

$

1.68

 

Diluted

 

$

0.90

 

 

$

0.26

 

 

$

2.63

 

 

$

1.53

 

Three Months Ended September 30, 

Nine Months Ended September 30, 

(In thousands except per share data)

     

2020

     

2019

     

2020

     

2019

   

Numerator:

Net income attributable to Innoviva stockholders, basic

$

28,218

$

39,809

 

$

170,499

 

$

111,339

Add: interest expense on 2023 Notes

 

1,171

 

1,157

 

3,535

 

3,482

Net income attributable to Innoviva stockholders, diluted

$

29,389

$

40,966

 

$

174,034

 

$

114,821

Denominator:

Weighted-average shares used to compute basic net income per share attributable to Innoviva stockholders

 

101,358

 

101,191

 

101,306

 

101,134

Dilutive effect of 2023 Notes

 

12,189

 

12,189

 

12,189

 

12,189

Dilutive effect of options and awards granted under equity incentive plan and employee stock purchase plan

 

25

 

35

 

48

 

71

Weighted-average shares used to compute diluted net income per share attributable to Innoviva stockholders

 

113,572

 

113,415

 

113,543

 

113,394

Net income per share attributable to Innoviva stockholders

Basic

$

0.28

$

0.39

 

$

1.68

 

$

1.10

Diluted

$

0.26

$

0.36

 

$

1.53

 

$

1.01

Anti-Dilutive Securities

The following common stock equivalents were not included in the computation of diluted net income per share because their effect was anti-dilutive:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Outstanding options and awards granted under equity incentive
   plan and employee stock purchase plan

 

 

891

 

 

 

1,268

 

 

 

1,048

 

 

 

1,172

 

Three Months Ended September 30, 

Nine Months Ended September 30, 

(In thousands)

    

2020

    

2019

    

2020

    

2019

Outstanding options and awards granted under equity incentive plan and employee stock purchase plan

1,268

 

1,144

 

1,172

 

1,128

11

3. Revenue Recognition and Collaborative Arrangements

We recognize royalty revenue on net sales of products with respect to which we have contractual royalty rights in the period in which the royalties are earned. Royalties, which may include adjustments of estimates of net sales in prior periods, are recognized net of amortization of capitalized fees associated with any approval and launch milestone payments made to GSK.

11


Net Revenue from Collaborative Arrangements

Net revenue recognized under our GSK Agreements was as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Royalties from a related party
   - RELVAR/BREO

 

$

54,092

 

 

$

63,893

 

 

$

176,398

 

 

$

165,612

 

Royalties from a related party
   - ANORO

 

 

11,641

 

 

 

11,882

 

 

 

34,101

 

 

 

32,931

 

Royalties from a related party
   - TRELEGY

 

 

35,585

 

 

 

16,375

 

 

 

84,055

 

 

 

48,143

 

Total royalties from a related party

 

 

101,318

 

 

 

92,150

 

 

 

294,554

 

 

 

246,686

 

Less: amortization of capitalized fees
   paid to a related party

 

 

(3,456

)

 

 

(3,456

)

 

 

(10,368

)

 

 

(10,368

)

Royalty revenue

 

 

97,862

 

 

 

88,694

 

 

 

284,186

 

 

 

236,318

 

Strategic alliance - MABA program

 

 

0

 

 

 

0

 

 

 

0

 

 

 

10,000

 

Total net revenue from GSK

 

$

97,862

 

 

$

88,694

 

 

$

284,186

 

 

$

246,318

 

4. Consolidated Entities

Three Months Ended September 30, 

Nine Months Ended September 30, 

(In thousands)

    

2020

    

2019

    

2020

    

2019

Royalties from a related party — RELVAR/BREO

$

63,893

$

46,433

$

165,612

$

136,259

Royalties from a related party — ANORO

 

11,882

 

11,548

 

32,931

 

30,753

Royalties from a related party — TRELEGY

16,375

11,230

48,143

28,401

Total royalties from a related party

 

92,150

 

69,211

 

246,686

 

195,413

Less: amortization of capitalized fees paid to a related party

 

(3,456)

 

(3,456)

 

(10,368)

 

(10,368)

Royalty revenue

 

88,694

 

65,755

 

236,318

 

185,045

Strategic alliance  — MABA program

0

0

10,000

0

Total net revenue from GSK

$

88,694

$

65,755

$

246,318

$

185,045

DuringWe consolidate the nine months ended September 30, 2020,financial results of TRC and Pulmoquine Therapeutics, Inc. (“Pulmoquine”), which we recognized $10.0 million in revenue in connection withhave determined to be VIEs. As we have the terminationpower to direct the economically significant activities of these entities and the obligation to absorb losses of, or the right to receive benefits from them, we are the primary beneficiary of the Bifunctional Muscarinic Antagonist-Beta2 Agonistentities. We also consolidate the financial results of ISP Fund LP (the “Partnership”), which is our partnership with Sarissa Capital Management LP (“MABA”Sarissa Capital”) program under, as we have determined that the Strategic Alliance Agreement with GSK in June 2020.

Partnership is a VIE and we are its primary beneficiary.

4. Consolidated Entities

Theravance Respiratory Company, LLC

The primary source of revenue for TRC is the royalties generated from the net sales of TRELEGY® ELLIPTA® by GSK. As of September 30, 2020,2021, TRC held equity investments in InCarda Therapeutics, Inc. (“InCarda”) and December 31, 2019, $16.4 millionImaginAb, Inc. (“ImaginAb”). Refer to Note 5, “Financial Instruments and $14.4 million, respectively, of the related party receivables from collaborative arrangements were attributable to TRC. Fair Value Measurements,” for more information.

The cash balance attributable to TRC as of September 30, 2020 was $41.4 million. Total revenuesummarized financial information for TRC related to TRELEGY® ELLIPTA® was $16.4 million and $11.2 million for the three months ended September 30, 2020 and 2019, respectively, and $48.1 million and $28.4 million for the nine months ended September 30, 2020 and 2019, respectively. Total revenue for TRC also included a $10.0 million fee for the termination of the MABA program for the nine months ended September 30, 2020. Total operating expenses were $0.6 million and $1.4 million for the three and nine months ended September 30, 2020, respectively, compared to $2.8 million and $2.9 million for the same periods in 2019.is presented as follows:

Balance sheets

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,505

 

 

$

38,081

 

Receivables from collaborative arrangements

 

 

35,535

 

 

 

24,946

 

Prepaid expenses and other current assets

 

 

1

 

 

 

0

 

Equity and long-term investments

 

 

22,743

 

 

 

16,959

 

Total assets

 

$

104,784

 

 

$

79,986

 

 

 

 

 

 

 

 

Liabilities and LLC Members’ Equity

 

 

 

 

 

 

Current liabilities

 

$

189

 

 

$

508

 

LLC members’ equity

 

 

104,595

 

 

 

79,478

 

Total liabilities and LLC members’ equity

 

$

104,784

 

 

$

79,986

 

12


Income statements

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Royalty revenue from a related party

 

$

35,585

 

 

$

16,375

 

 

$

84,055

 

 

$

48,143

 

Strategic alliance - MABA program

 

 

0

 

 

 

0

 

 

 

0

 

 

 

10,000

 

Total net revenue

 

 

35,585

 

 

 

16,375

 

 

 

84,055

 

 

 

58,143

 

Operating expenses

 

 

194

 

 

 

607

 

 

 

3,811

 

 

 

1,358

 

Income from operations

 

 

35,391

 

 

 

15,768

 

 

 

80,244

 

 

 

56,785

 

Other income, net

 

 

0

 

 

 

0

 

 

 

0

 

 

 

37

 

Changes in fair values of equity and long-term
   investments

 

 

148

 

 

 

0

 

 

 

(589

)

 

 

0

 

Net income

 

$

35,539

 

 

$

15,768

 

 

$

79,655

 

 

$

56,822

 

Pulmoquine Therapeutics, Inc.

OnIn April 20, 2020, we entered into a securities purchase agreement with Pulmoquine to purchase purchased 5,808,550 shares of Series A preferred stock of Pulmoquine for $5.0$5.0 million in cash. Upon consummation of the transaction, we owned approximately 90.9% of Pulmoquine's outstandingThese shares (excluding unvested restricted shares) and holdrepresent a majority voting interest.interest in Pulmoquine. Pulmoquine is a biotechnology company focused on the research and development of an aerosolized formulation of hydroxychloroquine to treat respiratory infections, suchinfections. In August 2021, the directors and stockholders of Pulmoquine voted to cease and terminate all operations and activities of Pulmoquine as soon as practicable. In September 2021, we received a net distribution of $2.3 million in cash related to the novel coronavirus (“COVID-19”). voluntary dissolution of Pulmoquine. The dissolution will be finalized in the fourth quarter of 2021.

As of September 30, 2021 and December 31, 2020, Pulmoquine’s total assets, mainly attributable to Pulmoquine were $4.6 million, including $4.3 million in cash and cash equivalents, were $0.2 million and $0.3$3.5 million, in other current assets.respectively. Pulmoquine does not currently generate revenue. Total operating expense was $1.1$0.5 million and $1.7$0.7 million for the three and nine months ended September 30, 2021 respectively. Total operating expense was $1.1 million and $1.7 million for the three and nine months ended September 30, 2020.

ISP Fund LP

In December 2020, Innoviva Strategic Partners LLC, our wholly owned subsidiary (“Strategic Partners”), contributed $300.0 million to ISP Fund LP (the “Partnership”) for investing in “long” positions in the healthcare, pharmaceutical and biotechnology sectors and became a limited partner. The general partner of the Partnership (“General Partner”) is an affiliate of Sarissa Capital.

In May 2021, Strategic Partners received a distribution of $110.0 million from the Partnership to provide funding to Innoviva for a strategic repurchase of shares held by GSK. Pursuant to the letter agreement entered into between Strategic Partners, the Partnership and Sarissa Capital Fund GP LP on May 20, 2021, Strategic Partners is obligated to make additional capital contributions to the Partnership in an aggregate amount equal to the amount of the distribution ($110.0 million) prior to March 31, 2022. The capital contributions will then be subject to a 36-month lock up period from the contribution date.

As of September 30, 2021, we continued to hold 100% of the economic interest of the Partnership. As of September 30, 2021 and December 31, 2020, total assets of the Partnership were $228.9 million and $299.3 million, respectively, of which all were attributable to equity and long-term investments. During the three and nine months ended September 30, 2021, the Partnership incurred $0.2 million and $1.5 million, respectively, of investment-related expenses, net of investment-related income. During the three and nine months ended September 30, 2021, the Partnership recorded net unrealized gains of $10.1 million and $30.6 million, respectively, and net realized gains of $10.5 million during the nine months ended September 30, 2021 as changes in fair values of equity and long-term investments, net on the consolidated statements of income.

13


5. Financial Instruments and Fair Value Measurements

Equity Investment in Armata

On January 27,During the first quarter of 2020, we entered into a securities purchase agreement to acquire Innoviva acquired 8,710,800 shares of Armata’s common stock and an equal number of warrants to purchase up to 8,710,800 additional shares of its common stockArmata Pharmaceuticals, Inc. (“Armata”) for $25.0$25.0 million in cash. Armata is a clinical stage biotechnology company focused on precisely targeted bacteriophage therapeutics for antibiotic-resistant infections.

On January 26, 2021, Innoviva Strategic Opportunities LLC (“ISO”), our wholly owned subsidiary, entered into a securities purchase agreement with Armata to acquire 6,153,847 shares of Armata common stock and warrants to purchase 6,153,847 additional shares of Armata common stock for approximately $20.0 million. The investment is towas closed in 2 tranches on January 26, 2021 and March 17, 2021. The investments support Armata’s ongoing advancement of its bacteriophage development programs includingprograms. The additional investment in the expected first quarter of 2021 increased Innoviva and ISO’s combined ownership to 59.6% as of March 31, 2021. Armata entered into a voting agreement with the Company and ISO, pursuant to which the Company and ISO agreed not to vote or take any action by written consent with respect to any common shares held by the Company and ISO that represent, in human studiesthe aggregate, more than 49.5% of the total number of shares of Armata’s common stock issued and outstanding as of the record date for voting on the matters related to Armata's lead phage candidate, AP-PA02, targeting Pseudomonas aeruginosa, as well as AP-SA02, its phage candidate targeting Staphylococcus Aureuselection or removal of Armata’s board members. As of September 30, 2021, .3

The investment was closed in 2 tranches on February 12, 2020 of the 8 members of Armata’s board of directors are also members of the board of directors of Innoviva. As of September 30, 2021 and March 27, 2020. NaN of our board members joined Armata’s board. After the second closing,December 31, 2020, we owned approximately 46.7%59.5% and 46.6%, respectively, of Armata’s common stock.

12

The investment in Armata provides Innoviva and ISO the ability to have significant influence, but not control over Armata’s operations. Based on our evaluation, we determined that Armata is a VIE, but Innoviva isand ISO are not the primary beneficiary of the VIE. We electedcontinue to elect the fair value option to account for both Armata’s common stock and warrants. The fair value of Armata’s common stock is measured based on its closing market price. The warrants purchased in 2020 and 2021 have an exercise price of $2.87$2.87 and $3.25 per share, respectively. All warrants are exercisable immediately within five years from the issuance date of the warrants and include a cashless exercise option. We use the Black-Scholes-Merton pricing model to estimate the fair value of these warrants with the following input assumptions: Armata’s closing market price on the valuation date, the risk-free interest rate computed based on the U.S. Treasury yield, the remaining contractual term as the expected term, and the expected stock price volatility calculated based on the historical volatility of the common stock of Armata and its peer companies.

As of September 30, 2021, the fair values of Armata’s common stock and warrants were estimated at $53.8 million and $35.5 million, respectively. As of December 31, 2020, the fair values of Armata’s common stock and warrants were estimated at $27.8$26.0 million and $20.2$18.0 million, respectively. The total fair value of both financial instruments in the amount of $48.0$89.3 million and $44.0 million was recorded as equity and long-term investments on the consolidated balance sheets as of September 30, 2020. We2021 and December 31, 2020, respectively. During the three and nine months ended September 30, 2021, we recorded $12.4$11.6 million in unrealized loss and $23.0$25.3 million in unrealized gain from fair value changes in Armata’s investmentsunrealized gains, respectively, as changes in fair values of equity and long-term investments, net on the consolidated statements of income forincome. During the three and nine months ended September 30, 2020, respectively.we recorded $12.4 million unrealized loss and $23.0 million unrealized gains, respectively, as changes in fair values of equity and long-term investments, net on the consolidated statements of income.

Equity Investment in Entasis

On April 12,During the second quarter of 2020, we entered into a securities purchase agreement with Entasis (“April 2020 Entasis Agreement”) to purchase purchased 14,000,000 shares of Entasis common stock as well as warrants to purchase 14,000,000 additional shares of its common stock of Entasis Therapeutics, Inc. (“Entasis”) for approximately $35.0$35.0 million in cash. Entasis is a clinical-stage biotechnology company focused on the discovery and development of novel antibacterial products. The investment is to support Entasis's ongoing advancement

During the third quarter of its pathogen-targeted antibacterial product candidates, which include their global Phase 3 registration trial evaluating a fixed-dose combination of sulbactam and durlobactam (SUL-DUR) against Acinetobacter baumanii infections.

The investment was closed in 2 tranches on April 22, 2020 and June 11, 2020. Innoviva has a right to designate 2 members to Entasis's board. After the second closing, we owned approximately 51.3% of Entasis's common stock.

On August 27, 2020, we entered into another securities purchase agreement with Entasis ("August 2020 Entasis Agreement") to purchase purchased 4,672,897 shares of Entasis common stock as well as warrants to purchase 4,672,897 additional shares of its common stock for approximately $12.5$12.5 million in cash. Innoviva has a right to designate 2 members to Entasis’ board. As of September 30, 2021, 0 Innoviva designees are serving on Entasis’ 6-member board.

On May 3, 2021, ISO entered into a securities purchase agreement with Entasis to acquire 10,000,000 shares of Entasis common stock and warrants to purchase 10,000,000 additional shares of Entasis common stock for approximately $20.0 million. The investment was closed in 2 tranches on May 3, 2021 and June 11, 2021. This investment supports the continued development of Entasis’ novel pipeline of pathogen-targeted antibacterial product candidates. As of September 1,30, 2021, we owned approximately 60.6% of Entasis’ common stock. As of December 31, 2020, we completed the purchase and increased our ownershipowned approximately 51.0% of Entasis’ common stock.

14


The investment in Entasis's common stock to 52.6%.

The investmentEntasis provides Innoviva the ability to have significant influence, but not control over Entasis'sEntasis’ operations. Based on our evaluation, we determined that Entasis is a VIE, but Innoviva is not the primary beneficiary of the VIE. We elected the fair value option to account for both Entasis'sEntasis’s common stock and warrants at fair value. The fair value of Entasis'sEntasis’ common stock is measured based on its closing market price at each balance sheet date. The warrants have an exercise price of $2.50$2.50 per share underand $2.675 per share for those warrants acquired in the Aprilsecond and third quarter of 2020, Entasis Agreement andrespectively. The warrants acquired in the second quarter of 2021 have an exercise price of $2.675 under$2.00 per share. All of the August 2020 Entasis Agreement. The warrants are exercisable immediately within five years from the issuance date of the warrants and include a cashless exercise option. We use the Black-Scholes-Merton pricing model to estimate the fair value of these warrants.

As of September 30, 2021, the fair values of Entasis’s common stock and warrants were estimated at $95.8 million and $70.4 million, respectively. As of December 31, 2020, the fair values of Entasis’s common stock and warrants were estimated at $46.1 million and $31.9 million, respectively. The total fair value of both financial instruments in the amount of $166.2 million and $78.0 million was recorded as equity and long-term investments on the consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. During the three and nine months ended September 30, 2021, we recorded $34.9 million and $68.1 million unrealized gains as changes in fair values of equity and long-term investments, net on the consolidated statements of income. During the three and nine months ended September 30, 2020, we recorded $17.0 million unrealized loss and $16.3 million unrealized gain, respectively, as changes in fair values of equity and long-term investments, net on the consolidated statements of income.

Equity Investment in InCarda

During the third quarter of 2020, TRC purchased 20,469,432 shares of Series C preferred stock and warrants to purchase 5,117,358 additional shares of Series C preferred stock of InCarda Therapeutics, Inc. (“InCarda”) for $15.0 million. $0.8 million was incurred for investment due diligence costs and recorded as part of the equity investment on the consolidated balance sheets. InCarda is a privately held biopharmaceutical company focused on developing inhaled therapies for cardiovascular diseases. As of September 30, 2021, 1 of InCarda’s 8 board members is designated by TRC. As of September 30, 2021 and December 31, 2020, TRC held 13.0% and 13.4%, respectively, of InCarda’s outstanding equity.

The investment in InCarda does not provide TRC the ability to control or have significant influence over InCarda’s operations. Based on our evaluation, we determined that InCarda is a VIE, but TRC is not the primary beneficiary of the VIE. We account for our investment in the Series C preferred shares in InCarda using the measurement alternative. Under the measurement alternative, the equity investment is initially recorded at its allocated cost, but the carrying value may be adjusted through earnings upon an impairment or when there is an observable price change involving the same or a similar investment with the same issuer. As of September 30, 2021 and December 31, 2020, we recorded $15.8 million from our investment in InCarda’s Series C preferred stock as equity and long-term investments on the consolidated balance sheets. There was 0 impairment or other change to the value of InCarda’s Series C preferred stock as of September 30, 2021 and December 31, 2020.

The warrants are recorded at fair value and subject to remeasurement at each balance sheet date. The warrants are exercisable immediately with an exercise price of $0.7328 per share. In September 2021, TRC and InCarda entered into an amendment to extend the expiration date of the warrants from October 6, 2021 to March 31, 2022. We use the Black-Scholes-Merton pricing model to estimate the fair value of the warrants with the following input assumptions: Entasis's closing marketthe exercise price onof the valuation date,warrants, the risk-free interest rate computed based on the U.S. Treasury yield, the remaining contractual term as the expected term, and the expected stock price volatility calculated based on the historical volatility of the common stock of Entasis and its peer companies.

As of September 30, 2021 and December 31, 2020, the fair valuesvalue of Entasis's common stock andInCarda’s warrants werewas estimated at $38.1$0.6 million and $25.7$1.1 million, respectively. The total fair value of both financial instruments in the amount of $63.8 million wasrespectively, and recorded as equity and long-term investments on the consolidated balance sheets. We recorded $17.0 million in unrealized loss and $16.3 million in unrealized gain from fair value changes in Entasis's investments as changes in fair values of equity investments, net on the consolidated statements of income forDuring the three and nine months ended September 30, 2020, respectively.

13

Equity Investment in ImaginAb

On March 18, 2021, TRC entered into a securities purchase agreement with ImaginAb, Inc. to purchase 4,051,724 shares of ImaginAb Series C preferred stock for $4.7 million. On the same day, TRC also entered into a securities purchase agreement with one of ImaginAb’s common stockholders to purchase 4,097,157 shares of ImaginAb common stock for $1.3 million. ImaginAb is a privately held biotechnology company focused on clinically managing cancer and autoimmune diseases via molecular imaging. $0.4 million was incurred for investment due diligence costs and execution and recorded as part of the equity investment on the consolidated balance sheets. As of September 30, 2021, 1 of ImaginAb’s 5 board members is designated by TRC. As of September 30, 2021, TRC held 12.5% of ImaginAb equity ownership.

15


The investment in ImaginAb does not provide TRC the ability to control or have significant influence over ImaginAb’s operations. Based on our evaluation, we determined that ImaginAb is a VIE, but TRC is not the primary beneficiary of the VIE. Because ImaginAb’s equity securities are not publicly traded and do not have a readily determinable fair value, we have accounted for our investment in ImaginAb’s Series C preferred stock and common stock using the measurement alternative. Under the measurement alternative, the equity investment is initially recorded at its allocated cost, but the carrying value may be adjusted through earnings upon an impairment or when there is an observable price change involving the same or a similar investment with the same issuer. As of September 30, 2021, $6.4 million was recorded as equity and long-term investments on the consolidated balance sheets. There was no change to the value of our investment in ImaginAB’s equity securities as of September 30, 2021.

Available-for-Sale Securities

The estimated fair value of available-for-sale securities is based on quoted market prices for these or similar investments that were based on prices obtained from a commercial pricing service. Available-for-sale securities are summarized below:

 

 

September 30, 2021

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds(1)

 

$

78,025

 

 

$

0

 

 

$

0

 

 

$

78,025

 

Total

 

$

78,025

 

 

$

0

 

 

$

0

 

 

$

78,025

 

September 30, 2020

Gross

Gross

Unrealized

Unrealized

Estimated

(In thousands)

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

Money market funds

$

430,144

$

0

$

0

$

430,144

Total

$

430,144

$

0

$

0

$

430,144

(1)
Money market funds are included in cash and cash equivalents on the consolidated balance sheets.

 

 

December 31, 2020

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds (1)

 

$

204,808

 

 

$

0

 

 

$

0

 

 

$

204,808

 

Total

 

$

204,808

 

 

$

0

 

 

$

0

 

 

$

204,808

 

December 31, 2019

Gross

Gross

Unrealized

Unrealized

Estimated

(In thousands)

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

U.S. government securities

$

53,799

$

35

$

0

$

53,834

U.S. commercial paper

 

18,915

 

0

 

0

 

18,915

Money market funds

 

233,992

 

0

 

0

 

233,992

Total

$

306,706

$

35

$

0

$

306,741

(1)
Money market funds are included in cash and cash equivalents on the consolidated balance sheets.

As of September 30, 2020, all investments were money market funds. There was 0 credit loss to our available-for-sale securities as of September 30, 2021 and December 31, 2020.

1416

Fair Value Measurements

Our available-for-sale securities and equity investments are measured at fair value on a recurring basis and our debt is carried at amortized cost basis. The estimated fair values were as follows:

 

 

Estimated Fair Value Measurements as of September 30, 2021 Using:

 

 

 

Quoted Price
in Active
Markets for

 

 

Significant
Other

 

 

Significant

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

Types of Instruments

 

Assets

 

 

Inputs

 

 

Inputs

 

 

 

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

78,025

 

 

$

0

 

 

$

0

 

 

$

78,025

 

Investments held by ISP Fund LP (1)

 

 

226,848

 

 

 

0

 

 

 

2,098

 

 

 

228,946

 

Equity investment - Armata Common Stock

 

 

53,810

 

 

 

0

 

 

 

0

 

 

 

53,810

 

Equity investment - Armata Warrants

 

 

0

 

 

 

35,470

 

 

 

0

 

 

 

35,470

 

Equity investment - Entasis Common Stock

 

 

95,767

 

 

 

0

 

 

 

0

 

 

 

95,767

 

Equity investment - Entasis Warrants

 

 

0

 

 

 

70,380

 

 

 

0

 

 

 

70,380

 

Equity investment - InCarda Warrants

 

 

0

 

 

 

0

 

 

 

558

 

 

 

558

 

Total assets measured at estimated fair value

 

$

454,450

 

 

$

105,850

 

 

$

2,656

 

 

$

562,956

 

Debt

 

 

 

 

 

 

 

 

 

 

 

 

2023 Notes

 

$

0

 

 

$

259,142

 

 

$

0

 

 

$

259,142

 

2025 Notes

 

 

0

 

 

 

231,418

 

 

 

0

 

 

 

231,418

 

Total fair value of debt

 

$

0

 

 

$

490,560

 

 

$

0

 

 

$

490,560

 

Estimated Fair Value Measurements as of September 30, 2020 Using:

Quoted Price

Significant

in Active 

Other

Significant

Markets for 

Observable

Unobservable

Types of Instruments

Identical Assets

Inputs

Inputs

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

Money market funds

$

430,144

$

0

$

0

$

430,144

Equity investment - Armata Common Stock

27,787

0

0

27,787

Equity investment - Armata Warrants

0

20,167

0

20,167

Equity investment - Entasis Common Stock

38,093

0

0

38,093

Equity investment - Entasis Warrants

0

25,698

0

25,698

Total assets measured at estimated fair value

$

496,024

$

45,865

$

0

$

541,889

Debt

2023 Notes

$

0

$

230,494

$

0

$

230,494

2025 Notes

0

191,491

0

191,491

Total fair value of debt

$

0

$

421,985

$

0

$

421,985

(1)
The investments held by ISP Fund LP consisted of equity investments and money market funds, which are subject to a 36-month lock-up period from our initial contribution date, December 11, 2020.

 

 

Estimated Fair Value Measurements as of December 31, 2020 Using:

 

 

 

Quoted Price

 

 

 

 

 

 

 

 

 

 

 

 

in Active

 

 

Significant

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

Types of Instruments

 

Assets

 

 

Inputs

 

 

Inputs

 

 

 

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

204,808

 

 

$

0

 

 

$

0

 

 

$

204,808

 

Investments held by ISP Fund LP (1)

 

 

299,288

 

 

 

0

 

 

 

0

 

 

 

299,288

 

Equity investment - Armata Common Stock

 

 

25,958

 

 

 

0

 

 

 

0

 

 

 

25,958

 

Equity investment - Armata Warrants

 

 

0

 

 

 

18,049

 

 

 

0

 

 

 

18,049

 

Equity investment - Entasis Common Stock

 

 

46,122

 

 

 

0

 

 

 

0

 

 

 

46,122

 

Equity investment - Entasis Warrants

 

 

0

 

 

 

31,882

 

 

 

0

 

 

 

31,882

 

Equity investment - InCarda Warrants

 

 

0

 

 

 

0

 

 

 

1,147

 

 

 

1,147

 

Total assets measured at estimated fair value

 

$

576,176

 

 

$

49,931

 

 

$

1,147

 

 

$

627,254

 

Debt

 

 

 

 

 

 

 

 

 

 

 

 

2023 Notes

 

$

0

 

 

$

239,779

 

 

$

0

 

 

$

239,779

 

2025 Notes

 

 

0

 

 

 

206,135

 

 

 

0

 

 

 

206,135

 

Total fair value of debt

 

$

0

 

 

$

445,914

 

 

$

0

 

 

$

445,914

 

Estimated Fair Value Measurements as of December 31, 2019 Using:

Quoted Price

Significant

in Active 

Other

Significant

Markets for 

Observable

Unobservable

Types of Instruments

Identical Assets

Inputs

Inputs

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

U.S. government securities

$

0

$

53,834

$

0

$

53,834

U.S. commercial paper

0

 

18,915

 

0

 

18,915

Money market funds

233,992

0

0

233,992

Total assets measured at estimated fair value

$

233,992

$

72,749

$

0

$

306,741

Debt

2023 Notes

$

0

$

243,394

$

0

$

243,394

2025 Notes

0

208,976

0

208,976

Total fair value of debt

$

0

$

452,370

$

0

$

452,370

(1)
The investments held by ISP Fund LP consisted of equity investments and money market funds, which are subject to a 36-month lock-up period from our initial contribution date, December 11, 2020.

The fair valuevalues of our marketable securitiesequity investments in Armata and Entasis’s common stock and publicly traded investments held by ISP Fund LP are based on the quoted prices in active markets and are classified as Level 1 financial instruments. The fair values of the warrants of Armata and Entasis classified within Level 2 isare based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

The fair values of our equity investments in Armata17


InCarda’s warrants and Entasis's common stock are based on their respective closing market prices per share atprivate placement positions held by the reporting dateISP Fund LP and are classified as Level 13 financial instruments. The fair values of our equity investments in Armatainstruments as these securities are not publicly traded and Entasis's warrants are included within Level 2 as the assumptions used in the valuation model for valuing these securities are based on thesignificant unobservable and observable inputs that include their respective closing market prices per share, their respective comparable companies’ market data and the U.S. Treasury yield.including those of publicly traded peer companies.

The fair valuevalues of our 2023 Notes and of our 2025 Notes isare based on recent trading prices of the respective instruments.

15

6. Stock-Based Compensation

Stock- Based Compensation Expense

Stock-based compensation expense iswas included in the consolidated statements of income as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

General and administrative

 

$

542

 

 

$

441

 

 

$

1,463

 

 

$

1,251

 

Three Months Ended September 30, 

Nine Months Ended September 30, 

(In thousands)

    

2020

    

2019

    

2020

    

2019

General and administrative

$

441

$

489

$

1,251

$

1,568

Valuation Assumptions

Black-Scholes-Merton assumptions used in calculating the estimated value of our stock options on the date of grant were as follows:

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

Risk-free interest rate

 

1.07%-1.13%

 

Expected term (in years)

 

 

6

 

Volatility

 

 

45

%

Dividend yield

 

 

0

%

Weighted-average estimated fair value of stock options granted

 

$

5.61

 

There were 0 grants of stock options during the three months ended September 30, 2021 and the three and nine months ended September 30, 2020.

7. Debt

Our debt consists of:

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2021

 

 

2020

 

2023 Notes

 

$

240,984

 

 

$

240,984

 

2025 Notes

 

 

192,500

 

 

 

192,500

 

Total debt

 

 

433,484

 

 

 

433,484

 

Unamortized debt discount and issuance costs

 

 

(41,189

)

 

 

(47,967

)

Net long-term debt

 

$

392,295

 

 

$

385,517

 

September 30, 

December 31, 

(In thousands)

    

2020

    

2019

2023 Notes

$

240,984

$

240,984

2025 Notes

192,500

192,500

Total debt

433,484

433,484

Unamortized debt discount and issuance costs

(50,134)

(56,364)

Net long-term debt

$

383,350

$

377,120

Convertible Senior Notes Due 2025

In accordance with accounting guidance for debt with conversion and other options, we separately account for the liability and equity components of the 2025 Notes by allocating the proceeds between the liability component and the embedded conversion option (“equity component”) due to our ability to settle the conversion obligation of the 2025 Notes in cash, common stock or a combination of cash and common stock, at our option. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature using the income approach. The allocation was performed in a manner that reflected our non-convertible debt borrowing rate for similar debt. The equity component of the 2025 Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2025 Notes and the fair value of the liability of the 2025 Notes on the date of issuance. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense using the effective interest method over the term of the 2025 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

18


Our outstanding 2025 Notes balances consisted of the following:

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2021

 

 

2020

 

Liability component

 

 

 

 

 

 

Principal

 

$

192,500

 

 

$

192,500

 

Debt discount and issuance costs, net

 

 

(40,420

)

 

 

(46,766

)

Net carrying amount

 

$

152,080

 

 

$

145,734

 

Equity component, net

 

$

65,361

 

 

$

65,361

 

September 30, 

December 31, 

(In thousands)

    

2020

    

2019

Liability component

 

  

Principal

$

192,500

$

192,500

Debt discount and issuance costs, net

 

(48,788)

 

(54,597)

Net carrying amount

$

143,712

$

137,903

Equity component, net

$

65,361

$

65,361

The following table sets forth total interest expense recognized related to the 2025 Notes for the three and nine months ended September 30, 20202021 and 2019:2020:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Contractual interest expense

 

$

1,203

 

 

$

1,203

 

 

$

3,609

 

 

$

3,609

 

Amortization of debt issuance costs

 

 

166

 

 

 

152

 

 

 

487

 

 

 

446

 

Amortization of debt discount

 

 

1,997

 

 

 

1,828

 

 

 

5,859

 

 

 

5,363

 

Total interest and amortization expense

 

$

3,366

 

 

$

3,183

 

 

$

9,955

 

 

$

9,418

 

Three Months Ended September 30, 

Nine Months Ended September 30, 

(In thousands)

    

2020

    

2019

    

2020

    

2019

Contractual interest expense

$

1,203

$

1,203

$

3,609

$

3,609

Amortization of debt issuance costs

 

152

 

139

 

446

 

408

Amortization of debt discount

 

1,828

 

1,673

 

5,363

 

4,909

Total interest and amortization expense

$

3,183

$

3,015

$

9,418

$

8,926

16

Debt Maturities

The aggregate scheduled maturities of our long-term debt as of September 30, 2020, are2021 were as follows:

(In thousands)

 

 

 

Years ending December 31:

 

 

 

Remainder of 2021

 

$

0

 

2022

 

 

0

 

2023

 

 

240,984

 

2024

 

 

0

 

2025

 

 

192,500

 

Total

 

$

433,484

 

(In thousands)

    

Years ending December 31:

2020 to 2022

$

0

2023

 

240,984

2024

 

0

Thereafter

 

192,500

Total

$

433,484

8. Commitments and Contingencies

Operating Lease

Future minimum operating lease payments on our corporate headquarters as of September 30, 2020 are2021 were as follows:

(In thousands)

    

 

 

 

Years ending December 31:

 

 

 

Remainder of 2020

$

30

2021

123

Remainder of 2021

 

$

31

 

2022

109

 

109

 

Thereafter

0

 

 

0

 

Total

$

262

 

$

140

 

LegalProceedings

From time to time, the Company is involved in legal proceedings in the ordinary course of its business. Currently, we believe that no litigation or arbitration, either individually or in the aggregate, to which we are presently a party is likely to have a material adverse effect on our operating results or financial position.

19


9. Shareholders’ Equity

On May 20, 2021, the Company entered into a share repurchase agreement with GSK to buy back 32,005,260 shares of its common stock at $12.25 per share from GSK, representing all of the shares of common stock or other capital interests of Innoviva owned by GSK or its affiliates. The total consideration including related transaction fees was $394.1 million. The share repurchase closed on May 25, 2021, and the shares were transferred to the Company. These shares are recorded as treasury stock on the consolidated balance sheets.

10. Income Taxes

9. Income Taxes

Provisional income tax expense for the three and nine months ended September 30, 20202021 was $8.9$20.5 million and $44.7$65.6 million, respectively, compared to $10.6$8.9 million and $29.5$44.7 million for the same periods in 20192020 respectively. The Company’s effective income tax rate for the nine months ended September 30, 20202021 was 17%16.9%, compared to 18%17.0% for the same period in 2019.2020. The difference betweenincome tax expense for the nine months ended September 30, 2021 and 2020 was determined based upon estimates of the Company’s effective income tax rates in various jurisdictions. Our effective income tax rate andfor the nine months ended September 30, 2021 was lower than the U.S. federal statutory income tax rate of 21% isdue primarily attributable to non-deductible expenses, noncontrolling interest and state income tax, non-deductible expenses and noncontrolling interest.taxes.

20

10. Subsequent Events

In early October 2020, TRC invested $15.0 million in the equity securities of a privately held biopharmaceutical company.

17

Table of Contents


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 that are not 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,” “pursue,” “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® and TRELEGY® ELLIPTA® in the jurisdictions in which these products have been approved; substantial competition from products discovered, developed, launched and commercialized both by GSK and by other pharmaceutical companies; the strategies, plans and objectives of the Company (including(related to the Company’s growth strategy and corporate development initiatives beyond the Company’s existing respiratory portfolio); the timing, manner and amount of capital deployment, including potential capital returns to stockholders; risks related to 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;Company’s growth strategy; projections of revenue, expenses and other financial items; the impact of the COVID-19 pandemic;items 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, 20192020 filed with the Securities and Exchange Commission (“SEC”) on February 19, 25, 2021, (“2020 and as amended on February 21, 2020 (“2019 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 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 20192020 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 20192020 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.

18

Table of Contents

OVERVIEW

21


OVERVIEW

Executive Summary

Innoviva, Inc. (“Innoviva”, the “Company”, the “Registrant” or “we” and other similar pronouns) is a company with a portfolio of royalties that includesand other healthcare assets. Our royalty portfolio contains respiratory assets partnered with Glaxo Group Limited (“GSK”), including RELVAR®/BREO® ELLIPTA® (fluticasone furoate/ vilanterol, “FF/VI”), ANORO® ELLIPTA® (umeclidinium bromide/ vilanterol, “UMEC/VI”) and TRELEGY® ELLIPTA® (the combination FF/UMEC/VI). 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%. Innoviva is also entitled to 15% of royalty payments made by GSK under its agreements originally entered into with us, and since assigned to TRC,Theravance Respiratory Company, LLC (“TRC”), including TRELEGY® ELLIPTA® and any other product or combination of products that may be discovered or developed in the future under the LABA Collaboration Agreement and the Strategic Alliance Agreement with GSK (referred to herein as the “GSK Agreements”), which have been assigned to TRC other than RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®.

Our company structure and organization are tailored to our focused activities of managing our respiratory assets partnered with GSK, the commercialoptimizing our operations and developmental obligations associated with the GSK Agreements, intellectual property, licensing operations, business development activities and providing for certain essential reporting and management functions of a public company. As of September 30, 2020, we had five employees.augmenting capital allocation. Our revenues consist of royalties and potential milestone payments, if any, from our respiratory partnership agreements with GSK.

Recent Highlights

19

GSK Net Sales:
Third quarter 2021 net sales of RELVAR®/BREO® ELLIPTA® by GSK were $360.6 million, down 15% from $426.0 million in the same quarter of 2020, with $146.0 million in net sales from the U.S. market and $214.6 million from non-U.S. markets.

TableThird quarter 2021 net sales of ContentsANORO

® ELLIPTA® by GSK were $179.1 million, down 2% from $182.8 million in the same quarter of 2020, with $102.0 million net sales from the U.S. market and $77.1 million from non-U.S. markets.

Recent Highlights

GSK Net Sales:
Third quarter 2021 net sales of TRELEGY® ELLIPTA® by GSK were $445.6 million, up 77% from $251.9 million in the same quarter of 2020, with $314.8 million in net sales from the U.S. market and $130.8 million in net sales from non-U.S. markets.
oThird quarter 2020 net sales of RELVAR®/BREO® ELLIPTA® by GSK were $426.0 million, up 38% from $309.5 million in the third quarter of 2019, with $219.2 million in net sales from the U.S. market and $206.8 million from non-U.S. markets.
oThird quarter 2020 net sales of ANORO® ELLIPTA® by GSK were $182.8 million, up 3% from $177.7 million in the third quarter of 2019, with $111.5 million net sales from the U.S. market and $71.3 million from non-U.S. markets.
oThird quarter 2020 net sales of TRELEGY® ELLIPTA® by GSK were $251.9 million, up 46% from $172.8 million in the third quarter of 2019, with $165.3 million in net sales from the U.S. market and $86.6 million in net sales from non-U.S. markets.
Capital Allocation:
oDuring the third quarter of 2020, the Company invested an additional $12.5 million in 4.7 million shares of Entasis's common stock and warrants to purchase up to an additional 4.7 million shares of the common stock at $2.675 per share. With this additional investment, Innoviva owned approximately 52.6% of Entasis's common stock as of September 30, 2020. Innoviva has a right to designate two members to Entasis's board.

Collaborative Arrangements with GSK

LABA Collaboration

In November 2002, we entered into ourthe LABA Collaboration Agreementcollaboration with GSK to develop and commercialize once-daily LABA products for the treatment of chronic obstructive pulmonary diseasedisorder (“COPD”) and asthma. Theasthma (the “LABA Collaboration Agreement”). For the treatment of COPD, the collaboration has developed three combination products: (1)

RELVAR®/BREO® ELLIPTA® (FF/VI) (“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)(“ICS”), fluticasone furoate (FF)(“FF”), (2)
ANORO® ELLIPTA® (UMEC/VI) (“UMEC/VI”), a once-daily medicine combining a long-acting muscarinic antagonist (“LAMA”), umeclidinium bromide (UMEC)(“UMEC”), with a LABA, VIvilanterol (VI), and (3)
TRELEGY® ELLIPTA®, fluticasone furoate/umeclidinium/vilanterol (FF/ (the combination FF/UMEC/VI), a once-daily combination medicine consisting of an ICS, LAMA and LABA.

22


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. The milestone fees paid to GSK were recognized as capitalized fees paid to a related party, which are being amortized over their estimated useful lives commencing upon the commercial launch of the products.

2004 Strategic Alliance

In March 2004, we entered into the Strategic Alliance Agreement with GSK where GSK received an option to license exclusive development and commercialization rights to product candidates from certain of our discovery programs on pre-determined terms and on an exclusive, worldwide basis. In 2005, GSK licensed our MABA program for the treatment of COPD, and in October 2011, we and GSK expanded the MABA program by adding six additional Innoviva-discovered preclinical MABA compounds (the “Additional MABAs”). The development program was funded in full by GSK. In June of 2020, GSK terminated the program and agreed to pay a $10.0 million termination fee to TRC. This fee was recognized as revenue from collaborative arrangements with a related party on our consolidated statements of income for the nine months ended September 30, 2020.

20

Table of Contents

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 (“US 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.

As part of our capital allocation strategies, we invest from time to time in equity securities of private or public companies. We also enter into strategic partnerships in order to accelerate the execution of our strategy and enhance returns on our capital. If we determine that we have control over these companies or partnerships, we consolidate the financial statements of these companies or partnerships. If we determine that we do not have control over these companies or partnerships under either voting or VIE models, we then determine if we have an ability to exercise significant influence via voting interests, board representation or other business relationships.

We may account for the equity investments where we exercise significant influence using either an equity method of accounting or at fair value by electing the fair value option.option under Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method, we apply it to all our financial interests in the same entity (equity and debt, including guarantees) that are eligible items. All gains and losses from fair value changes, unrealized and realized, are presented as changes in fair values of equity and long-term investments, net on the consolidated statements of income.

If we conclude that we do not have an ability to exercise significant influence over an investee, we may elect to account for an equity security without a readily determinable fair value using athe measurement alternative.alternative as prescribed by ASC Topic 825. This measurement alternative allows us to measure the equity investment at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

We recognize the royalty revenue on net sales of products with respect to which we have contractual royalty rights in the period in which the royalties are earned. The net sales reports provided by our partner are based on its methodology and assumptions to estimate rebates and returns, which it monitors and adjusts regularly in light of contractual and legal obligations, historical trends, past experience and projected market conditions. Our partner may make significant adjustments to its sales based on actual results recorded, which could cause our royalty revenue to fluctuate. We have the ability to conduct periodic royalty audits to evaluate the information provided by our partner. Royalties are recognized net of amortization of capitalized fees associated with any approval and launch milestone payments made to GSK.

There were no other significant changes to our critical accounting policies and estimates. Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on February 19, 2020, and as amended on February 21, 202025, 2021 provides a more complete discussion of our critical accounting policies and estimates.

23


Results of Operations

Net Revenue

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

 

 

Three Months Ended September 30,

 

 

Change

 

 

Nine Months Ended September 30,

 

 

Change

 

(In thousands)

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

Royalties from a related party
   - RELVAR/BREO

 

$

54,092

 

 

$

63,893

 

 

$

(9,801

)

 

 

(15

)%

 

$

176,398

 

 

$

165,612

 

 

$

10,786

 

 

 

7

%

Royalties from a related party
   - ANORO

 

 

11,641

 

 

 

11,882

 

 

 

(241

)

 

 

(2

)%

 

 

34,101

 

 

 

32,931

 

 

 

1,170

 

 

 

4

%

Royalties from a related party
   - TRELEGY

 

 

35,585

 

 

 

16,375

 

 

 

19,210

 

 

 

117

%

 

 

84,055

 

 

 

48,143

 

 

 

35,912

 

 

 

75

%

Total royalties from a related party

 

 

101,318

 

 

 

92,150

 

 

 

9,168

 

 

 

10

%

 

 

294,554

 

 

 

246,686

 

 

 

47,868

 

 

 

19

%

Less: amortization of capitalized fees
   paid to a related party

 

 

(3,456

)

 

 

(3,456

)

 

 

 

 

 

0

%

 

 

(10,368

)

 

 

(10,368

)

 

 

 

 

*

 

Royalty revenue

 

 

97,862

 

 

 

88,694

 

 

 

9,168

 

 

 

10

%

 

 

284,186

 

 

 

236,318

 

 

 

47,868

 

 

 

20

%

Strategic alliance - MABA program

 

 

 

 

 

 

 

 

 

 

*

 

 

 

 

 

 

10,000

 

 

 

(10,000

)

 

*

 

Total net revenue from GSK

 

$

97,862

 

 

$

88,694

 

 

$

9,168

 

 

 

10

%

 

$

284,186

 

 

$

246,318

 

 

$

37,868

 

 

 

15

%

Three Months Ended September 30, 

Change

 

Nine Months Ended September 30, 

Change

 

(In thousands)

    

2020

    

2019

    

$

    

%

 

2020

    

2019

    

$

    

%

 

Royalties from a related party - RELVAR/BREO

$

63,893

$

46,433

$

17,460

38

%

$

165,612

$

136,259

$

29,353

22

%

Royalties from a related party - ANORO

 

11,882

 

11,548

 

334

3

%

 

32,931

 

30,753

 

2,178

7

%

Royalties from a related party - TRELEGY

 

16,375

 

11,230

 

5,145

46

%

 

48,143

 

28,401

 

19,742

70

%

Total royalties from a related party

 

92,150

 

69,211

 

22,939

33

%

 

246,686

 

195,413

 

51,273

26

%

Less: amortization of capitalized fees paid to a related party

 

(3,456)

 

(3,456)

 

0

%

 

(10,368)

 

(10,368)

 

0

%

Royalty revenue

88,694

65,755

22,939

35

%

236,318

185,045

51,273

28

%

Strategic alliance -MABA program

*

10,000

10,000

*

Total net revenue from GSK

$

88,694

$

65,755

$

22,939

35

%

$

246,318

$

185,045

$

61,273

33

%

*Not Meaningful

Total net revenue increased to $88.7$97.9 million and $246.3$284.2 million for the three and nine months ended September 30, 2020,2021, compared to $65.8$88.7 million and $185.0$246.3 million, respectively, for the same periodperiods a year ago. Royalties for RELVAR®/BREO® ELLIPTA® increasedago, primarily due to favorable adjustments from better than expected pricing and continued volume growth in both U.S. and non-U.S. markets. ANORO® ELLIPTA® maintained its steady volume growth, offset by the increasing pricing pressure in the U.S. Royalties for TRELEGY® ELLIPTA® were higher due to the continued growth in prescriptions and market share.for our respiratory products.

21

Table of Contents

Research & Development

Research and development (“R&D”) expenses attributable to Pulmoquine’s product development efforts were $0.4 million and $0.5 million for the three and nine months ended September 30, 2021. Research and development expenses of $1.0 million and $1.6 million for the three and nine months ended September 30, 2020 were attributable to Pulmoquine’s product development efforts.

General & Administrative

General and administrative expenses, as compared to the prior year periods, were as follows:

 

 

Three Months Ended
September 30,

 

 

Change

 

 

Nine Months Ended
September 30,

 

 

Change

 

(In thousands)

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

General and administrative

 

$

2,860

 

 

$

3,254

 

 

$

(394

)

 

 

(12

)%

 

$

13,074

 

 

$

8,413

 

 

$

4,661

 

 

 

55

%

Three Months Ended September 30, 

Change

 

Nine Months Ended September 30, 

Change

 

(In thousands)

    

2020

    

2019

    

$

    

%

 

2020

    

2019

    

$

    

%

 

General and administrative expenses

$

3,254

$

4,962

$

(1,708)

(34)

%

$

8,413

$

12,324

$

(3,911)

(32)

%

General and administrative expenses for the three and nine months ended September 30, 20202021 decreased compared to the same periods in 2019, attributable to overall lower operating2020. General and administrative expenses incurred. The amount for the threenine months ended September 30, 2019 includes $2.8 million2021 increased compared to the same periods in 2020 mainly due to business development related advisory service fees and legal and related feesexpenses incurred for the arbitration initiated by Theravance Biopharma against the Company and TRC. The arbitration related legal fees were recognized in TRC’s statement of income.

Other Income, net and Interest Income

Other income, net and interest income, as compared to the prior year periods, were as follows:

 

 

Three Months Ended
September 30,

 

 

Change

 

Nine Months Ended
September 30,

 

 

Change

 

(In thousands)

 

2021

 

 

2020

 

 

$

 

 

%

 

2021

 

 

2020

 

 

$

 

 

%

 

Other income (expense), net

 

$

(652

)

 

$

(13

)

 

$

(639

)

 

*

 

$

(2,036

)

 

$

85

 

 

$

(2,121

)

 

*

 

Interest income

 

 

453

 

 

 

41

 

 

 

412

 

 

*

 

 

503

 

 

 

1,501

 

 

 

(998

)

 

 

(66

)%

Three Months Ended September 30, 

Change

Nine Months Ended September 30, 

Change

(In thousands)

    

2020

    

2019

    

$

    

%

2020

    

2019

    

$

    

%

Other income (expense), net

$

(13)

$

(115)

$

102

(89)

%

$

85

$

(122)

$

207

*

Interest income

 

41

$

1,624

(1,583)

(97)

%

 

1,501

$

4,002

(2,501)

(62)

%

*Not Meaningful

Interest income decreased24


The increase in other expense, net, for the three and nine months ended September 30, 2020, as2021 compared to the same periods a year ago was primarily due to lower interest rates impactedthe expenses incurred by ISP Fund LP. Interest income increased for the three and nine months ended September 30, 2021 compared to the same periods a year ago mainly due to favorable returns on investments managed by the COVID-19 pandemic.ISP Fund LP.

Interest Expense

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

 

 

Three Months Ended
September 30,

 

 

Change

 

 

Nine Months Ended
September 30,

 

 

Change

 

(In thousands)

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

Interest expense

 

$

4,790

 

 

$

4,603

 

 

$

187

 

 

 

4

%

 

$

14,229

 

 

$

13,680

 

 

$

549

 

 

 

4

%

Three Months Ended September 30, 

Change

 

Nine Months Ended September 30, 

Change

 

(In thousands)

    

2020

    

2019

    

$

    

%

 

2020

    

2019

    

$

    

%

 

Interest expense

$

4,603

$

4,693

$

(90)

(2)

%

$

13,680

$

13,971

$

(291)

(2)

%

Interest expense decreased slightlyincludes the amortization of debt discount and issuance costs for the three and nine months ended September 30, 2020, compared to the same periods a year ago primarilyour convertible notes. The increase in interest expense was mainly due to the lower average outstandingmore debt balance.discount and issuance costs being recognized through amortization.

Changes in Fair Values of Equity and Long-Term Investments

The decreaseChanges in fair values of equity and long-term investments, of $29.4 million was mainly due to the lower stock prices of our invested companies, Armata Pharmaceuticals Inc. ("Armata") and Entasis Therapeutics Holdings, Inc. ("Entasis") as of September 30, 2020, compared to the stock prices atprior year periods, were as follows:

 

 

Three Months Ended
September 30,

 

 

Change

 

Nine Months Ended
September 30,

 

 

Change

(In thousands)

 

2021

 

 

2020

 

 

$

 

 

%

 

2021

 

 

2020

 

 

$

 

 

%

Changes in fair values of equity
   and long-term investments, net

 

$

33,613

 

 

$

(29,368

)

 

$

62,981

 

 

*

 

$

133,973

 

 

$

39,245

 

 

$

94,728

 

 

*

*Not Meaningful

The changes in fair values of equity and long-term investments reflect the previous quarter ended June 30, 2020. For the nine ended September 30, 2020, thenet changes in the fair values of our equity investments of $39.2 million represent the net unrealized gains of our investments in Armata, Entasis, InCarda and Entasis.

As of September 30, 2020, the total fair value of Armata’s common stock and warrants that we own was estimated at $48.0 million. We recorded $12.4 million in unrealized loss and $23.0 million in unrealized gain from fair value changes and presented it in the changes in fair values ofthose equity investments on the consolidated statements of income for the three and nine months ended September 30, 2020, respectively.

22

Table of Contentsmanaged by ISP Fund LP.

As of September 30, 2020, the total fair value of Entasis’s common stock and warrants was estimated at $63.8 million. We recorded $17.0 million in unrealized loss and $16.3 million in unrealized gain from fair value changes and presented it in the changes in fair values of equity investments on the consolidated statements of income for the three and nine months ended September 30, 2020, respectively.

Provision for Income Taxes

The provisional income tax expense for the three and nine months ended September 30, 20202021 was $8.9$20.5 million and $44.7$65.6 million with an effective income tax rate of 17%16.9%, respectively, compared to $10.6$8.9 million and $29.5$44.7 million, respectively, with an effective interestincome tax rate of 18%17.0% in the same period a year ago. The difference between the Company's effective income tax rate and the U.S. federal statutory income tax rate of 21% is primarily attributable to state income tax, non-deductible expenses and noncontrolling interests.

Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interest, as compared to the prior periods, was as follows:

 

 

Three Months Ended
September 30,

 

 

Change

 

Nine Months Ended
September 30,

 

 

Change

 

(In thousands)

 

2021

 

 

2020

 

 

$

 

 

%

 

2021

 

 

2020

 

 

$

 

 

%

 

Net income attributable to
   noncontrolling interest

 

$

30,208

 

 

$

13,403

 

 

$

16,805

 

 

*

 

$

67,678

 

 

$

48,299

 

 

$

19,379

 

 

 

40

%

Three Months Ended September 30, 

Change

Nine Months Ended September 30, 

Change

(In thousands)

    

2020

    

2019

    

$

    

%

    

2020

    

2019

    

$

    

%

Net income attributable to noncontrolling interest

$

13,403

$

7,242

$

6,161

85

%

$

48,299

$

21,792

$

26,507

*

*Not Meaningful

This represents the 85% share of net income in Theravance Respiratory Company, LLC for Theravance Biopharma for the three and nine months ended September 30, 20202021 and 2019.2020. The increase was primarily due to the increase in the growth in prescriptions and market share for TRELEGY® ELLIPTA®.

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 collaborative arrangements. For the nine months ended September 30, 2020,2021, we

25


generated gross royalty revenues from GSK of $246.7 million and a $10.0 million fee from the termination of the MABA program.$294.6 million. Net cash and cash equivalents short term investments and marketable securities totaled $479.2$135.1 million and receivables from GSK totaled $92.2$101.3 million as of September 30, 2020.2021.

23

Table of Contents

Adequacy of Cash Resources to Meet Future Needs

We believe that cash from projected future royalty revenues and our cash, cash equivalents and marketable securities will be sufficient to meet our anticipated debt service and operating needs for at least the next 12 months based upon current operating plans and financial forecasts. 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 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 tender offers, redemptions, amendments, repurchases 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:

 

 

Nine Months Ended
September 30,

 

 

 

 

(In thousands)

 

2021

 

 

2020

 

 

Change

 

Net cash provided by operating activities

 

$

265,432

 

 

$

227,833

 

 

$

37,599

 

Net cash provided by investing activities

 

 

63,627

 

 

 

544

 

 

 

63,083

 

Net cash used in financing activities

 

 

(440,431

)

 

 

(27,280

)

 

 

(413,151

)

    

Nine Months Ended September 30, 

    

(In thousands)

    

2020

    

2019

    

Change

Net cash provided by operating activities

$

227,833

$

190,553

$

37,280

Net cash provided by (used in) investing activities

 

544

 

(69,997)

 

70,541

Net cash used in financing activities

 

(27,280)

 

(10,027)

 

(17,253)

Cash Flows from Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2021 was $265.4 million, consisting primarily of our net income of $323.2 million, adjusted for net non-cash items such as $65.6 million of deferred income taxes, $10.4 million of depreciation and amortization, and $6.8 million of amortization of debt discount and issuance costs, partially offset by an increase of $132.5 million in the fair value of our equity and long-term investments, net and an increase in receivables from collaborative arrangements of $7.3 million.

Net cash provided by operating activities for the nine months ended September 30, 2020 was $227.8 million, consisting primarily of our net income of $218.8 million, adjusted for net non-cash items such as $44.7 million of deferred income taxes, and $10.4 million of depreciation and amortization, partially offset by an increase of $39.2 million increase in the fair valuesvalue of our equity investments and an increase of $12.7 million increase in receivables from collaborative arrangements.

Cash Flows from Investing Activities

Net cash provided by operatinginvesting activities for the nine months ended September 30, 20192021 of $63.6 million was $190.6primarily due to $110.0 million consisting primarilyin distribution of our net income of $133.1equity and long-term investments from the ISP Fund LP, partially offset by $46.4 million adjusted for non-cash items such as $29.5 million of deferred income taxes, $10.4 million of depreciationinvestments in Armata, ImaginAb and amortization and $5.8 million amortization of debt discount and issuance costs, as well as a decrease in receivables from collaborative arrangements of $14.1 million.Entasis.

Cash Flows from Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2020 of $0.5 million was primarily due to $86.0 million received from maturities of marketable securities, partially offset by $12.9 million in purchases of marketable securities and $72.5 million for our investments in Armata and Entasis.

Cash Flows from Financing Activities

Net cash used in investingfinancing activities for the nine months ended September 30, 20192021 of $70.0$440.4 million was primarily due to $230.9$394.1 million in purchases of marketable securities, partially offset by $160.9used for our common stock repurchase from GSK and $46.4 million proceeds received from maturities of marketable securities.distributions to noncontrolling interest.

Cash Flows from Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2020 of $27.3 million was primarily due to $28.0 million in distributions to noncontrolling interest.

Net cash used in financing activities for the nine months ended September 30, 2019 of $10.0 million was primarily due to $10.6 million in distributions to noncontrolling interest.

24

Table of Contents

Off-Balance Sheet Arrangements

In June 2014, our facility leases in South San Francisco, California were assigned to Theravance Biopharma, Inc. (“Theravance Biopharma”) in connection with the spin-off of Theravance Biopharma. However, if Theravance Biopharma were to default on its lease obligations, we would be held liable by the landlord and thus, we have in substance guaranteed the lease payments for these facilities. We would also be responsible for lease-related payments including utilities, property taxes, and common area maintenance, which may be as much as the actual lease payments. This lease concluded in May 2020, and we have no further obligations for the lease.

26


Item 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no significant changes in our market risk or how our market risk is managed compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

We conducted an evaluation as of September 30, 2020,2021, 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 required time periods. 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

Internal control measures have been designed and continually evaluated for our equity investment and capital allocation process since our initial investment occurred in the first quarter ended March 31, 2020. There have been no other material changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LegalProceedings

In May 2019, Theravance Biopharma, which is the owner of 85% of the economic interests in TRC, initiated arbitration against the Company and TRC, relating to a dispute as to the determination by Innoviva (as manager of TRC) to cause TRC to explore potential reinvestment opportunities for the royalty proceeds received by GSK into initiatives that Innoviva believes will increase the value of TRC and TRELEGY® ELLIPTA®. Theravance Biopharma alleged that, in causing TRC to not distribute substantially all royalty proceeds received from GSK, Innoviva breached the limited liability company operating agreement governing TRC (the “Operating Agreement”), as well as the fiduciary duties applicable to Innoviva as manager of TRC. The hearing in respect of the arbitration was conducted from July 23, 2019 through July 25, 2019. Post-arbitration oral argument was heard on August 14, 2019. On September 26, 2019, the arbitrator issued a final decision. The arbitrator ruled that Innoviva did not breach the Operating Agreement or its fiduciary duties by withholding royalties or pursuing reinvestment opportunities. Accordingly, the Company is permitted to continue to pursue development and commercialization initiatives. The arbitrator did conclude that Innoviva breached a provision of the Operating Agreement requiring Innoviva to deliver quarterly financial plans to Theravance Biopharma. However, the arbitrator concluded that this technical breach did not cause any damages to Theravance Biopharma and the arbitrator awarded limited injunctive relief to expand and clarify the disclosure obligations under the Operating Agreement related to the delivery of financial plans and the pursuit of investment opportunities (if those opportunities related to TRELEGY® ELLIPTA®). Finally, the arbitrator ruled that the Company is entitled to indemnification from TRC for 95% of its fees and expenses incurred in connection with the arbitration.

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On September 30, 2019, the Company and TRC filed a Verified Complaint in the Court of Chancery of the State of Delaware (“Court of Chancery”) to confirm the arbitration award. The award was confirmed by the Court of Chancery on May 4, 2020.

On July 16, 2020, Innoviva and TRC initiated a lawsuit in the Court of Chancery against Theravance Biopharma, seeking a permanent injunction preventing Theravance Biopharma from interfering with Innoviva'sInnoviva’s ability to cause TRC to reserve cash to pursue non-Trelegy related investments opportunities and a declaration that the arbitration award conclusively established that Innoviva, as manager of TRC, has such authority. The Court of Chancery directed the parties to obtain the arbitrator'sarbitrator’s opinion as to whether the arbitration award addressed non-Trelegy related investment opportunities. On July 31, 2020, the arbitrator, while reiterating that Innoviva has broad authority as manager of TRC, found that histhis award did not specifically address this situation. Accordingly, on August 5, 2020, the parties stipulated to the dismissal of the Court of Chancery action.

On October 6, 2020, Theravance Biopharma initiated a new arbitration against the Company and TRC, challenging Innoviva’s authority as manager of TRC to cause TRC to pursue non-Trelegy related investment opportunities and again alleging that Innoviva is required to cause TRC to distribute substantially all royalty proceeds from GSK. AnThe hearing in respect of the arbitration hearingwas conducted from February 16, 2021 through February 19, 2021. Post-arbitration oral argument was heard on March 8, 2021. On March 30, 2021, the arbitrator issued a final decision. The arbitrator ruled that Innoviva did not breach the Operating Agreement or its fiduciary duties by withholding royalties to pursue non-Trelegy-related investment opportunities. Additionally, the arbitrator ruled that the Company is scheduledentitled to indemnification from TRC for 100% of its fees and expenses reasonably incurred in connection with the first quarter of 2021.arbitration.

TheOn April 15, 2021, the Company intends to vigorously defend against the allegationsfiled a Verified Complaint in the newCourt of Chancery to confirm the arbitration demand, but there can be no assurancesaward. On May 19, 2021, Theravance Biopharma submitted an answer to the Verified Complaint and filed a Motion to Modify the Arbitral Award, alleging that it contained a mathematical error. The parties filed a proposed stipulation to remand the defense will be successful.

motion to Chancellor Chandler for his consideration, which the Court of Chancery granted. On June 25, 2021, Innoviva submitted a brief to Chancellor Chandler in opposition to the motion and on July 15, 2021, Theravance Biopharma submitted a reply brief. On August 6, 2021, Chancellor Chandler issued a modified final award, which did not affect any of his ultimate conclusions. The modified award was confirmed by the Court of Chancery on September 16, 2021.

Item 1A. Risk Factors

Our business is subject to a number of risks, including those previously reportedidentified in Item 1A of Part I of our 20192020 Form 10-K and in Item 1A of Part II of our Form 10-Q for the three months ended March 31, 2020 (the "Q1 10-Q"). Except for the risk factors set forth in the Q1 10-Q and as set forth under “Item 1. Legal Proceedings” above, there10-K. There have been no other material changes to the risk factors described in our 20192020 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

None.

Item 3: Defaults Upon Senior Securities

None.

None.

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Item 4: Mine Safety Disclosures

None.

None.

Item 5: Other Information

None.

None.

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Item 6. Exhibits

(a)Index to Exhibits
(a)
Index to Exhibits

Exhibit
Number

Description

Form

Exhibit

Incorporated
by Reference
Filing
Date/Period
End Date

Exhibit
Number

Description

Form

Exhibit

Incorporated


by Reference


Filing
Date/Period
End Date

31.1

31.1

Certification of Principal Executive Officer pursuant to Rules 13a-1413a‑14 pursuant to the Securities Exchange Act of 1934

31.2

Certification of Principal Financial Officer pursuant to Rules 13a-1413a‑14 pursuant to the Securities Exchange Act of 1934

32

Certifications Pursuant to 18 U.S.C. Section 1350

101

Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended September 30, 2020) formatted in iXBRL (Inline eXtensible Business Reporting Language).

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

104

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

document)

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SIGNATURES

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Innoviva, Inc.

Date: October 28, 202027, 2021

/s/ Pavel Raifeld

Pavel Raifeld

Chief Executive Officer

(Principal Executive Officer)

Date: October 28, 202027, 2021

/s/ Marianne Zhen

Marianne Zhen

Chief Accounting Officer

(Principal Financial Officer)

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