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Item 1. Business

2022-02-28 compared with 2021-02-25 · 68 added, 47 removed, 133 unchanged (46% of the section changed)

Innoviva, Inc.

(“Innoviva”, the “Company”, the “Registrant” or “we” and other similar pronouns) is a company with a portfolio of royalties and 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:

(“Innoviva”, the “Company”, the “Registrant”

or “we”

and other similar pronouns) is a company with a portfolio of royalties and other healthcare assets.

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 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 headquarters are located at 1350 Old Bayshore Highway, Suite 400, Burlingame, CA 94010.

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LABA Collaboration

In November 2002, we entered into our LABA Collaboration Agreement with GSK to develop and commercialize once-daily products for the treatment of chronic obstructive pulmonary disease (“COPD”) and asthma.

In November 2002, we entered into our LABA Collaboration Agreement with GSK to develop and commercialize once‑daily products for the treatment of chronic obstructive pulmonary disease (“COPD”) and asthma.

The collaboration has developed three combination products:

● RELVAR ® /BREO ® ELLIPTA ® (“FF/VI”) (BREO ® ELLIPTA ® is the proprietary name in the U.S.

RELVAR ® /BREO ® ELLIPTA ® (“FF/VI”) (BREO ® ELLIPTA ® is the proprietary name in the U.S.

and Canada and RELVAR ® ELLIPTA ® is the proprietary name outside the U.S.

and Canada), a once-daily combination medicine consisting of a LABA, vilanterol (“VI”), and an inhaled corticosteroid (“ICS”), fluticasone furoate (“FF”),

● ANORO ® ELLIPTA ® (“UMEC/VI”), a once-daily medicine combining a long-acting muscarinic antagonist (“LAMA”), umeclidinium bromide (“UMEC”), with a LABA, VI, and

and Canada), a once-daily combination medicine consisting of a LABA, vilanterol (“VI”), and an inhaled corticosteroid (“ICS”), fluticasone furoate (“FF”),

ANORO ® ELLIPTA ® (“UMEC/VI”), a once-daily medicine combining a long-acting muscarinic antagonist (“LAMA”), umeclidinium bromide (“UMEC”), with a LABA, VI, and

TRELEGY ® ELLIPTA ® (the combination FF/UMEC/VI), a once-daily combination medicine consisting of an ICS, LAMA and LABA.

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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 predetermined terms and on an exclusive, worldwide basis.

In 2005, GSK licensed our Bifunctional Muscarinic Antagonist-Beta2 Agonist ("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.

As a result of the transactions effected by the spin-off of Theravance Biopharma in June 2014 (the “Spin-Off”), the Strategic Alliance Agreement was assigned to TRC, which is entitled to receive any contingent payments and royalties payable by GSK from sales of products that may be developed under the Strategic Alliance Agreement, such as MABA, and MABA/FF.

In June of 2020, GSK terminated the MABA program and agreed to pay a $10.0 million termination fee to TRC.

In June 2020, GSK terminated the MABA 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 year ended December 31, 2020.

Common Stock owned by GSK

As of February 12, 2021, GSK beneficially owned approximately 31.6% of our outstanding common stock.

Recent Highlights

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market and $226.2 million from non-U.S.

o Fourth quarter 2020 net sales of ANORO ® ELLIPTA ® by GSK were $200.9 million, up 10% from $182.7 million in the fourth quarter of 2019, with $119.4 million net sales from the U.S.

o Fourth quarter 2021 net sales of ANORO ® ELLIPTA ® by GSK were $166.7 million, down 17% from $200.9 million in the fourth quarter of 2020, with $85.3 million net sales from the U.S.

market and $81.4 million from non-U.S.

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market and $143.1 million in net sales from non-U.S.

● Capital Allocation:

o During December 2020, the Company entered into a strategic partnership with Sarissa Capital Management LP ("Sarissa Capital") designed to accelerate the execution of our strategy and enhance returns on our capital.

As a part of the agreement, Sarissa Capital provides Innoviva with a range of advisory services advancing our acquisition strategy.

In addition, the Company's wholly owned subsidiary, Innoviva Strategic Partners LLC, became a limited partner of ISP Fund LP (the “Partnership”) and made an initial contribution of $300 million for the purposes of investing in “long-only” securities in the healthcare, pharmaceutical and biotechnology industries.

The general partner of the Partnership is an affiliate of Sarissa Capital, which acts as the investment adviser to the Partnership.

o In January 2021, the Company entered into an agreement with Armata Pharmaceuticals, Inc.

("Armata"), pursuant to which it will invest, subject to certain closing conditions, additional $20.0 million in 6.2 million shares of Armata common stock and an equal number of warrants with $3.25 strike price in two tranches.

At the closing of the first tranche, Innoviva acquired approximately 1.9 million shares of Armata common stock and 1.9 million warrants for an aggregate purchase price of $6.1 million.

Upon closing of the second tranche, Innoviva expects to own approximately 60% of Armata's outstanding stock.

Strategic Investments:

o During the fourth quarter of 2021, we invested an additional $4.0 million in Armata Pharmaceuticals, Inc.

(“Armata”) to acquire 1.2 million shares of common stock at $3.30 per share.

As of December 31, 2021, our total ownership of Armata’s outstanding stock (without giving effect to our warrants) was approximately 60%.

o In February 2022, we entered into an agreement with Armata, pursuant to which we will invest, subject to certain closing conditions, an additional $45.0 million to acquire 9.0 million shares of Armata common stock and warrants to purchase up to 4.5 million shares of Armata common stock with an exercise price of $5.00 per share in two tranches.

At the closing of the first tranche in February 2022, we acquired approximately 3.6 million shares of Armata common stock and 1.8 million warrants for an aggregate purchase price of $18.1 million.

Upon closing of the second tranche, we expect to own approximately 70% of Armata’s outstanding stock (without giving effect to our warrants).

In addition, on February 1, 2022, we submitted to Entasis Therapeutics Holdings, Inc.

ETTX) ("Entasis") a non-binding proposal to acquire all of the outstanding stock of Entasis not owned by us for all cash consideration.

The proposal is non-binding and is subject to a number of conditions, including the receipt of requisite board and shareholder approvals, confirmatory diligence and negotiation and execution of a definitive merger agreement.

There can be no assurance that a definitive agreement with respect to the transaction will be executed, or if executed, whether the transaction will be consummated.

There is also no certainty as to the timetable for execution of a definitive agreement, if any.

Any failure by us to complete this acquisition on a timely basis, or at all, or to realize the benefits that we expect as a result of the acquisition, could have an adverse effect on our business.

Manufacturing

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The development and commercialization of products and product candidates pursuant to the GSK Agreements, or by entities that we have invested in or acquired, are subject to extensive regulation by governmental authorities in the United States and other countries.

Before marketing in the United States, any medicine must undergo rigorous preclinical studies and clinical studies and an extensive regulatory approval process implemented by the FDA.

Before marketing in the United States, any medicine must undergo rigorous preclinical studies and clinical studies and an extensive regulatory approval process implemented by the U.S.

Food and Drug Administration ("FDA").

Outside the United States, the ability to market a product depends upon receiving a marketing authorization from the appropriate regulatory authorities.

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In any country, the commercialization of medicines is permitted only if the appropriate regulatory authority is satisfied that our collaborative partner has presented adequate evidence of the safety, quality and efficacy of such medicines.

Once a product is approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if safety or quality issues are identified after the product reaches the marketplace.

In addition, the FDA may require post-marketing studies, referred to as Phase 4 studies, to monitor the effect of approved products, and may limit further marketing of the product based on the results of these post-marketing studies.

The FDA has broad post-market regulatory and enforcement powers, including the ability to suspend or delay issuance of approvals, seize products, withdraw approvals, enjoin violations, and institute criminal prosecution.

If regulatory approval for a medicine is obtained, the clearance to market the product will be limited to those diseases and conditions for which the medicine is effective, as demonstrated through clinical studies and included in the medicine’s labeling.

Even if this regulatory approval is obtained, a marketed medicine, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA.

The FDA ensures the quality of approved medicines by carefully monitoring manufacturers’ compliance with its current good manufacturing practice (“cGMP”) regulations.

Once a product is approved, the FDA may withdraw the product approval if compliance with pre‑

and post‑

marketing regulatory standards is not maintained or if safety or quality issues are identified after the product reaches the marketplace.

In addition, the FDA may require post marketing studies, referred to as Phase 4 studies, to monitor the effect of approved products, and may limit further marketing of the product based on the results of these post‑marketing studies.

The FDA has broad post‑market regulatory and enforcement powers, including the ability to suspend or delay issuance of approvals, seize products, withdraw approvals, enjoin violations, institute criminal investigations, and refer cases to the U.S.

Department of Justice for prosecution or an injunction or other civil remedies.

If regulatory approval for a medicine is obtained, commercial marketing of the product will be limited to those diseases and conditions for which the medicine is effective, as demonstrated through clinical studies and included in the medicine’s labeling.

Even if this regulatory approval is obtained, the manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping requirements, requirements to report adverse experiences and comply with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patient populations.

A marketed medicine, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA.

The FDA ensures the quality of approved medicines by carefully monitoring manufacturers’

compliance with its current good manufacturing practice (“cGMP”) regulations.

The cGMP regulations for drugs contain minimum requirements for the methods, facilities, and controls used in manufacturing, processing, and packaging of a medicine.

The regulations are intended to make sure that a medicine is safe for use, and that it has the ingredients and strength it claims to have.

Discovery of previously unknown problems with a medicine, manufacturer or facility may result in restrictions on the medicine or manufacturer, including costly recalls or withdrawal of the medicine from the market.

Discovery of previously unknown problems with a medicine, manufacturer or facility or noncompliance with regulatory requirements may result in restrictions on the medicine or manufacturer, including revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical studies to assess new safety risks, refusal of the FDA to approve pending applications or supplements to approved applications, imposition of distribution, marketing or manufacturing restrictions, costly recalls or withdrawal of the medicine from the market, warning letters, product seizure, injunction and the imposition of civil or criminal penalties.

We and our collaborative partner are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances in connection with the development and commercialization of products and product candidates.

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Strategic Advisory Agreement

On December 11, 2020, we entered into a Strategic Advisory Agreement (the “Services Agreement”) with Sarissa Capital Management LP (“Sarissa Capital”), pursuant to which Sarissa Capital provides a variety of strategic services to us in order to assist us in the development and execution of our acquisition strategy intended to diversify our assets and the potential sources of revenue.

Sarissa Capital is considered to be a related party due to its investment in Innoviva and its representation on our Board of Directors.

Partnership Agreement

On December 11, 2020, Innoviva Strategic Partners LLC, our wholly owned subsidiary (“Strategic Partners”), entered into a subscription agreement and an Amended and Restated Limited Partnership Agreement (the “Partnership Agreement”) pursuant to which Strategic Partners became a limited partner of ISP Fund LP (the “Partnership”).

The general partner of the Partnership is an affiliate of Sarissa Capital and, pursuant to an investment management agreement, Sarissa Capital acts as the investment adviser to the Partnership.

Strategic Partners made a $300 million initial contribution to the Partnership.

The Partnership was formed for the purposes of investing in “long-only” securities in the healthcare, pharmaceutical and biotechnology industries.

The Partnership was formed for the purposes of investing in equity securities in the healthcare, pharmaceutical and biotechnology industries.

In May 2021, Strategic Partners received a distribution of $110.0 million from the Partnership to provide funding to us 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 agreed to make additional capital contributions to the Partnership in an aggregate amount equal to the amount of the May 2021 distribution prior to March 31, 2022.

We anticipate that RELVAR ® /BREO ® ELLIPTA ® (FF/VI), ANORO ® ELLIPTA ® (UMEC/VI) and TRELEGY ® ELLIPTA ® (the combination FF/UMEC/VI) will compete with a number of approved bronchodilator drugs alone or in combination, including each other and drug candidates under development that are designed to treat asthma and COPD.

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In Phase 3 development for COPD

● Trimbow (a fixed-dose, twice daily combination of formoterol, beclomethasone and glycopyrronium) manufactured by Chiesi and indicated for use in COPD

Trimbow (a fixed-dose, twice daily combination of formoterol, beclomethasone and glycopyrronium) manufactured by Chiesi and indicated for use in COPD in the E.U.

Foster (beclomethasone dipropionate in combination with formoterol fumarate) manufactured by Chiesi and indicated for use in asthma and COPD outside the U.S.

Enerzair Breezehaler (QVM149) (a fixed-dose combination of indacaterol, mometasone and glycopyrronium) developed by Novartis as a triple therapy/single inhaler for the treatment of asthma and approved in the E.U., Canada, and Japan

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Singulair ® (monteleukast), an orally active leukotriene receptor antagonist for the prophylaxis and treatment of asthma in patients 12 months of age and older marketed by Merck

● Tezepelumab ® , an injectable monoclonal antibody designed to inhibit thymic stromal lymphopoietin (TSLP), an epithelial cytokine thought to be critical in the initiation and persistence of airway inflammation.

Tezspire ® (tezepelumab-ekko), an injectable monoclonal antibody designed to inhibit thymic stromal lymphopoietin (TSLP), an epithelial cytokine thought to be critical in the initiation and persistence of airway inflammation.

Co-developed by Astra Zeneca and Amgen for the treatment of severe asthma.

Currently under regulatory review.

The FDA approved the Tezspire solution for subcutaneous injection in December 2021;

it is indicated for the add-on maintenance treatment of adult and pediatric patients aged 12 years and older with severe asthma.

In addition, several firms are developing new formulations of Advair/Seretide (salmeterol /fluticasone propionate) and Symbicort (formoterol fumerate/budesonide) which may be marketed as generics or branded generics relative to the existing products from GSK and AstraZeneca, respectively.

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Current examples of these products include the marketed products Duoresp/Biresp from Teva (generic Symbicort), AirFluSal Forspiro by Sandoz, Rolenium by Elpen and Sirdupla by Mylan (all generic versions of Seretide) which are all available in a wide number of countries in the E.U.

Numerous companies like Mylan N.V., Hikma Pharmaceuticals PLC (Hikma), Novartis’ Sandoz division and Teva Pharmaceuticals Industries Ltd.

(Teva) have publicly stated their intentions to bring generic forms of the ICS/LABA drug Advair ® , when certain patents covering the Advair ® delivery device expired in 2016.

Numerous companies have brought to market generic forms of the ICS/LABA drug Advair ® since certain patents covering the Advair ® delivery device expired in 2016.

In March 2017, Mylan N.V.

received a complete response letter from the FDA relating to its Abbreviated New Drug Application (“ANDA”) for fluticasone propionate 100, 250, 500 mcg and salmeterol 50 mcg inhalation powder.

In May 2017, Hikma announced that it received a complete response letter from the FDA relating to its ANDA for fluticasone propionate and salmeterol inhalation powder, and in February 2018, Novartis announced that its generic division Sandoz had received a complete response letter from the FDA in response to its ANDA for a third fluticasone propionate and salmeterol product.

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Teva announced that the FDA approved two of its products for adolescent and adult patients with asthma, one of which is AirDuo RespiClick ® (fluticasone propionate and salmeterol inhalation powder), a non-AB substitutable generic version of Advair ® .

In May 2020, Cipla filed for FDA approval of a generic version of Advair ® .

In April 2021, Hikma launched a generic version of Advair Diskus ® in the U.S.

In January 2020, Astra Zeneca launched an authorized generic version of Symbicort.

In general, these manufacturers are required to conduct a restricted number of clinical efficacy, pharmacokinetic and device studies to demonstrate equivalence to Advair, per the FDA’s September 2013 Draft Guidance Document.

In August 2021, Lupin launched Luforbec ® , a branded generic alternative to Foster, in select European markets.

Boehringer Ingelheim is expected to lose patent protection for Spiriva ® in 2022 which could lead to increased competition in the triple therapy space.

In general, these manufacturers are required to conduct a number of clinical efficacy, pharmacokinetic and device studies to demonstrate equivalence to Advair, per the FDA’s September 2013 Draft Guidance Document.

These studies are designed to demonstrate that the generic product has the same active ingredient(s), dosage form, strength, exposure and clinical efficacy as the branded product.

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Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product and products that may compete with such branded product is typically lost to the generic product.

In addition, in April 2016, the FDA issued draft guidelines documents covering Fluticasone Furoate/Vilanterol Trifenatate (FF/VI), the active ingredients used in RELVAR ® /BREO ® ELLIPTA ® .

In addition, in April 2016, the FDA issued a draft guidance document covering Fluticasone Furoate/Vilanterol Trifenatate (FF/VI), the active ingredients used in RELVAR ® /BREO ® ELLIPTA ® .

Human Capital Resources

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Marianne Zhen , CPA, was appointed Chief Accounting Officer in July 2018.

Zhen joined Innoviva in October 2014 as Corporate Controller.

Prior to joining Innoviva, Ms.

Prior to joining Innoviva in October 2014, Ms.

Zhen served as the Corporate Controller at Steelwedge Software Inc.

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from 2007 to 2011.

Previously, Ms.

Zhen served as a member of the board of directors of CalCPA Peninsula Silicon Valley Chapter.

Zhen earned a Bachelor of Science degree in Business Administration with a concentration in Accounting from San Francisco State University.

She is a member of the American Institute of Certified Public Accountants.

She is a member of the American Institute of Certified Public Accountants (AICPA) and a member of the California Society of Certified Public Accountants (CalCPA).

Code of Business Conduct

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Code of Business Conduct that applies to all directors, officers and employees.

The Code of Business Conduct, as amended and restated on May 1, 2017, is available on the corporate governance section of our website at www.inva.com .

The Code of Business Conduct, as amended through March 9, 2021, is available on the corporate governance section of our website at www.inva.com .

If the Company makes any substantive amendments to the Code of Business Conduct or grants a waiver from any provision of such code to any executive officer or director, the Company will promptly disclose the nature of the amendment or waiver, as required by applicable law.

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Our investor relations website is located at http://investor.inva.com .

We make available free of charge on our investor relations website under “SEC Filings” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our directors’ and officers’ Section 16 Reports and any amendments to those reports after filing or furnishing such materials to the SEC.

We make available free of charge on our investor relations website under “SEC Filings”

our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, our directors’

and officers’

Section 16 Reports and any amendments to those reports after filing or furnishing such materials to the SEC.

The information found on our website is not part of this or any other report that we file with or furnish to the SEC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business