What changed in this filing

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Item 1. Financial Statements

2023-08-02 compared with 2023-05-09 · 245 added, 169 removed, 1091 unchanged (28% of the section changed)

16 unchanged sentences

Intangible assets

Deferred tax assets

Liabilities and Stockholders’

20 unchanged sentences

65,225 and 69,188 issued and outstanding as of

March 31, 2023 and December 31, 2022, respectively

June 30, 2023 and December 31, 2022, respectively

Treasury stock:

at cost, 32,005 shares as of March 31, 2023

at cost, 32,005 shares as of June 30, 2023

and December 31, 2022, respectively

3 unchanged sentences

Total liabilities and stockholders’

* Condensed consolidated balance sheet as of December 31, 2022 has been derived from audited consolidated financial statements.

* Condensed consolidated balance sheet has been derived from audited consolidated financial statements as of December 31, 2022.

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands, except per share data)

Three Months Ended March 31,

Royalty revenue, net of amortization of

capitalized fees paid of $ 3,456 in the

three months ended March 31, 2023

Three Months Ended June 30,

Six Months Ended June 30,

Royalty revenue, net of amortization of capitalized fees

paid of $ 3,456 in the three months ended June 30, 2023

and 2022, and $ 6,912 in the six months ended

June 30, 2023 and 2022

Net product sales

19 unchanged sentences

Income before income taxes

Income tax expense, net

Income tax expense (benefit), net

Net income attributable to

14 unchanged sentences

(In thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Comprehensive income

7 unchanged sentences

(In thousands)

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

Treasury Stock

7 unchanged sentences

Balance as of March 31, 2023

Three Months Ended March 31, 2022

Issuance of common stock units

and stock awards, net of repurchase

of shares to satisfy tax withholding

Repurchase of common stock

Stock-based compensation

Balance as of June 30, 2023

Six Months Ended June 30, 2022

Treasury Stock

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Balance as of March 31, 2022

Distributions to noncontrolling

Equity activity of noncontrolling

interests in a consolidated

variable interest entity

Exercise of stock options and

issuance of common stock units

and stock awards, net of

repurchase of shares to satisfy

tax withholding

Conversion of convertible

subordinated notes due

Stock-based compensation

Balance as of June 30, 2022

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

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Income tax payable

Deferred revenue

Net cash provided by operating activities

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Cash and cash equivalents at end of period

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental Disclosure of Cash Flow Information:

2 unchanged sentences

Adoption of ASU 2020-06

Right-of-use asset obtained through the consolidation of Entasis Therapeutics Holdings, Inc.

Right-of-use asset obtained through the consolidation of Entasis

Therapeutics Holdings, Inc.

See accompanying notes to condensed consolidated financial statements.

14 unchanged sentences

Our commercial and marketed products include GIAPREZA ® (angiotensin II), approved to increase blood pressure in adults with septic or other distributive shock, and XERAVA ® (eravacycline) for the treatment of complicated intra-abdominal infections in adults.

Our development pipeline includes medicines for the treatment of bacterial infections, such as our lead asset sulbactam-durlobactam (“SUL-DUR”).

Our lead product candidate, XACDURO ® (formerly known as sulbactam-durlobactam or SUL-DUR), was approved by the United States Food and Drug Administration (“FDA”) on May 23, 2023 and we expect to commence commercial sales of the product later in 2023.

Our development pipeline includes medicines for the treatment of bacterial infections.

As such, we have a wholly owned robust infectious disease and hospital operating platform, as well as other assets in these areas, such as a large equity stake in Armata Pharmaceuticals, a leader in bacteriophage development with potential use across a range of infectious and other serious diseases.

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We do not believe that the loss of one of these distributors would significantly impact our ability to distribute our products, as we expect that sales volume would be absorbed by new or remaining distributors.

Three of our customers each account for 32 %, 31 % and 30 %, respectively, of our net product sales for the three months ended March 31, 2023.

Three of our customers each account for 37 %, 29 % and 27 %, respectively, of our net product sales for the three months ended June 30, 2023 , and 35 %, 30 % and 29 %, respectively, for the six months ended June 30, 2023 .

These same customers account for 37 %, 34 % and 26 %, respectively, of our receivables from net product sales, which are included in “Accounts receivables, net”

in our unaudited consolidated balance sheet as of March 31, 2023.

in our unaudited consolidated balance sheet as of June 30, 2023.

Refer to Item 1A.

117 unchanged sentences

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”) up until its maturity date on January 15, 2023, our convertible senior notes due 2025 (the “2025 Notes”) and our convertible senior notes due 2028 (the “2028 Notes”) using the if-converted method.

The following table shows the computation of basic and diluted net income per share for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table shows the computation of basic and diluted net income per share for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands except per share data)

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

2 unchanged sentences

Outstanding stock warrant

Outstanding 2025 Notes

Outstanding 2028 Notes

Revenue Recognition

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Net revenue recognized under our GSK Agreements was as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

4 unchanged sentences

Net Product Sales

Our net product sales were $ 11.5 million, consisting of net sales of GIAPREZA ® and XERAVA ® for $ 9.0 million and $ 2.5 million, respectively, for the three months ended March 31, 2023 .

We derived over 99 % of our net product sales for the period from customers located in the U.S.

Our net product sales were $ 15.7 million, consisting of net sales of GIAPREZA ® and XERAVA ® for $ 11.2 million and $ 4.5 million, respectively, for the three months ended June 30, 2023 .

Our net product sales were $ 27.2 million, consisting of net sales of GIAPREZA® and XERAVA® for $ 20.2 million and $ 7.0 million, respectively, for the six months ended June 30, 2023 .

We derived over 94 % and 96 % of our net product sales from customers located in the U.S for the three and six months ended June 30, 2023, respectively.

License Revenue

Refer to the out-license agreement with Everest in Note 4, “License and Collaboration Arrangements”.

Refer to the out-license agreement with Zai Lab and Everest in Note 4, “License and Collaboration Arrangements”.

License and Collaboration Arrangements

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Zai Lab will pay us a tiered royalty equal to from a high-single digit to low-double digit percentage based on annual net sales of licensed products in the territory, subject to specified reductions for the market entry of competing products, loss of patent coverage of licensed products and for payments owed to third parties for additional rights necessary to commercialize licensed products in the territory.

During the three months ended March 31, 2023, no reve nue was recognized under the Zai Agreement.

Payments received for research support and reimbursable clinical trial costs are recorded as a reduction to research and development expense during the period in which the qualifying expenses are incurred.

Such amounts recorded for the three months ended March 31, 2023 and 2022 are not material.

Such amounts recorded for the three and six months ended June 30, 2023 and 2022 are not material.

Following the approval of XACDURO ® by the FDA in May 2023, we recognized $ 3.0 million in license revenue for the three and six months ended June 30, 2023.

Entasis entered into a collaboration agreement with the Global Antibiotic Research and Development Partnership (“GARDP”) for the development, manufacture and commercialization of the product candidate zoliflodacin in certain countries (“the GARDP Collaboration Agreement”).

1 unchanged sentence

We recorded reimbursements from GARDP under this agreement as reduction to research and development expense.

Relevant amounts for the three months ended March 31, 2023 and 2022 are not material.

Relevant amounts for the three and six months ended June 30, 2023 and 2022 were not material.

In addition, under the GARDP Collaboration Agreement, GARDP was granted a worldwide, fully paid, exclusive and royalty-free license, with the right to sublicense, to use our zoliflodacin technology in connection with GARDP’s development, manufacture and commercialization of zoliflodacin in low-income and specified middle-income countries.

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PAION is required to use commercially reasonable efforts to commercialize GIAPREZA ® and XERAVA ® in the PAION Territory.

We have not recognized any revenue from PAION related to commercial milestones from the date of acquisition of La Jolla to March 31, 2023.

Royalty revenue recognized under this agreement for the three months ended March 31, 2023 was not material.

We have not recognized any revenue from PAION related to commercial milestones from the date of acquisition of La Jolla to June 30, 2023.

Royalty revenue recognized under this agreement for the three and six months ended June 30, 2023 was not material.

La Jolla also entered into the PAION commercial supply agreement (the “PAION Supply Agreement”) whereby La Jolla will supply PAION a minimum quantity of GIAPREZA ® and XERAVA ® through July 13, 2024.

1 unchanged sentence

During the initial term of the supply agreement, we will be reimbursed for direct and certain indirect manufacturing costs at cost.

We have not recognized any cost reimbursements under this agreement for the three months ended March 31, 2023.

We have not recognized any cost reimbursements under this agreement for the three and six months ended June 30, 2023.

Everest Medicines Limited

Pursuant to the Everest Medicines Limited (“Everest”) License, La Jolla granted Everest an exclusive license to develop and commercialize XERAVA ® for the treatment of complicated intra-abdominal infections (“cIAI”) and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”).

We are eligible to receive an additional $ 8.0 million regulatory milestone payment and up to an aggregate of $ 20.0 million in sales milestone payments.

The regulatory milestone was achieved during the three months ended March 31, 2023, and, as a result, we recognized $ 8.0 million in license revenue in our unaudited condensed consolidated statement of income for the period.

Under this agreement, we recognized $ 8.0 million in license revenue for the six months ended June 30, 2023 as a result of achievement of a regulatory milestone during the period.

We are eligible to receive additional sales milestone payments of up to an aggregate of $ 20.0 million.

We are also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline.

3 unchanged sentences

or (iii) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory.

Royalty revenue recognized under this agreement for the three months ended March 31, 2023 was not material.

Royalty revenue recognized under this agreement for the three and six months ended June 30, 2023 was not material.

La Jolla also entered into the Everest commercial supply agreement (the “Everest Supply Agreement”) whereby La Jolla will supply Everest a minimum quantity of XERAVA ® through December 31, 2023 and will transfer to Everest certain XERAVA ® -related manufacturing know-how.

We will be reimbursed for direct and certain indirect manufacturing costs at 110 % of cost through December 31, 2023.

We initially recognized a $ 2.8 million partial prepayment for XERAVA® as deferred revenue, of which, no revenue was recognized for the three months ended March 31, 2023.

We initially recognized a $ 2.8 million partial prepayment for XERAVA® as deferred revenue, of which, $ 0.5 million was recognized for the three and six months ended June 30, 2023.

In-License Agreements

4 unchanged sentences

The obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA ® .

Amounts recognized under this agreement for the three months ended March 31, 2023 were not material.

Amounts recognized under this agreement for the three and six months ended June 30, 2023 were not material.

Harvard University

9 unchanged sentences

The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA ® .

F or the three months ended March 31, 2023, we recognized $ 1.6 million in cost of license revenue under this agreement as a result of the license revenue we earned under the out-licensing agreement with Everest for the same period.

For the six months ended June 30, 2023 , we recognized $ 1.6 million in cost of license revenue under this agreement as a result of the license revenue we earned under the out-licensing agreement with Everest for the same period.

Paratek Pharmaceuticals, Inc.

4 unchanged sentences

Our obligation to pay royalties with respect to the licensed product is retroactive to the date of the first commercial sale of XERAVA ® and shall continue until there are no longer any valid claims of the Paratek patents, which will expire in October 2023 .

Amounts recognized under this agreement for the three months ended March 31, 2023 were not material.

Amounts recognized under this agreement for the three and six months ended June 30, 2023 were not material.

Consolidated Entities and Acquisitions

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(“Gate") and Nanolive SA (“Nanolive”), which had a total carrying value of $ 39.4 million, to ITH.

The summarized financial information of TRC for the three months ended March 31, 2022 are presented as follows:

Three Months Ended March 31,

The summarized financial information of TRC for the three and six months ended June 30, 2022 are presented as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

2 unchanged sentences

Income from operations

Other income, net

Income tax expense, net

12 unchanged sentences

Our maximum exposure to loss is equal to the amount we invested in the entity.

As of March 31, 2023, we held approximately 100 % of the economic interest of the Partnership.

As of March 31, 2023 and December 31, 2022, total assets of the Part nership were $ 318.5 million and $ 320.6 million, respectively, of which the majority was attributable to equity, debt and long-term investments.

As of March 31, 2023 and December 31, 2022, total liabilities were $ 4.1 million and $ 1.6 million, respectively .

As of June 30, 2023, we held approximately 100 % of the economic interest of the Partnership.

As of June 30, 2023 and December 31, 2022, total assets of the Part nership were $ 319.4 million and $ 320.6 million, respectively, of which the majority was attributable to equity, debt and long-term investments.

As of June 30, 2023 and December 31, 2022 , total liabilities were $ 0.7 million and $ 1.6 million, respectively.

The partnership’s assets can only be used to settle its own obligations.

During the three months ended March 31, 2023 and 2022, we record ed $ 0.5 million and $ 0.3 million, r espectively, of net investment-related expenses incurred by the Partnership, a nd $ 4.1 million of net negative changes and $ 2.1 million of net positive changes, respectively, in fair values of equity and long-term investments in the unaudited condensed consolidated statements of income.

During the three and six months ended June 30, 2023 , we recorded $ 0.6 million and $ 0.1 million, respectively, of net investment-related income earned by the Partnership, and $ 3.8 million of net positive changes and $ 0.3 million of net negative changes, respectively, in fair values of equity and long-term investments in the unaudited condensed consolidated statements of income.

During the three and six months ended June 30, 2022 , we recorded $ 0.5 million and $ 0.7 million, respectively, of net investment-related expens es incurred by the Partnership, and $ 6.5 million and $ 4.4 million, respectively, of net negative changes in fair values of equity and long-term investments in the unaudited condensed consolidated statements of income.

Entasis Therapeutics Holdings Inc.

7 unchanged sentences

On February 17, 2022, Innoviva Strategic Opportunities, LLC ("ISO") entered into a securities purchase agreement with Entasis pursuant to which ISO purchased a convertible promissory note for a total purchase price of $ 15.0 million.

The note bore an annual interest rate of 0.59 % and matured and became payable on August 18, 2022 unless it was converted at a conversion price of $ 1.48 before the maturity date.

The note bore an annual interest rate of 0.59 % and was due to mature and become payable on August 18, 2022 unless it was converted at a conversion price of $ 1.48 before the maturity date.

With this financing, we determined that we had both (i) the power to direct the economically significant activities of Entasis and (ii) the obligation to absorb the losses, or the right to receive the benefits, that could potentially be significant to Entasis and therefore, we were the primary beneficiary of Entasis.

11 unchanged sentences

After the acquisition in July 2022, we adjusted the purchase price allocation based on new and additional information related to product sales forecast provided by Entasis and deferred tax liabilities.

In February 2023, we recorded a measurement period adjustment of $ 1.2 million increase in goodwill, primarily related to a decrease in intangible assets of $ 0.8 million and an increase in deferred tax liabilities of $ 0.4 million.

The measurement period adjustment did not impact the consolidated net income for the three months ended March 31, 2023 and 2022.

In February 2023, we recorded a measurement period adjustment of a $ 1.2 million increase in goodwill, primarily related to a decrease in intangible assets of $ 0.8 million and an increase in deferred tax liabilities of $ 0.4 million.

The measurement period adjustment did not impact the consolidated net income for the periods presented.

The following table represents the adjusted fair values of the assets acquired and liabilities assumed by us in the transaction:

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As a result of the consolidation, we recognized a non-controlling interest of $ 38.5 million as of February 17, 2022.

Our consolidated net income for the three months ended March 31, 2022 included the net loss since the consolidation date of $ 4.5 million for Entasis.

Our consolidated net income for the three and six months ended June 30, 2022 included the net loss attributable to Innoviva stockholders since the consolidation date of $ 11.7 million and $ 16.3 million, respectively, from the results of operations of Entasis.

La Jolla Pharmaceutical Company

7 unchanged sentences

We incurred approximately $ 5.3 million in acquisition-related costs in connection with this acquisition during the year ended December 31, 2022.

The following table summarizes the preliminary allocation of the fair values assigned to the assets acquired and liabilities assumed as of the date of the acquisition:

In June 2023, we recorded a measurement period adjustment of $ 13.1 million decrease in goodwill, primarily related to an increase in deferred tax assets of $ 10.5 million and a decrease in deferred tax liabilities of $ 2.6 million.

T he following table summarizes the adjusted preliminary allocation of the fair values assigned to the assets acquired and liabilities assumed as of the date of the acquisition:

(In thousands)

8 unchanged sentences

Intangible assets

Deferred tax assets

Total assets acquired

3 unchanged sentences

Other long-term liabilities

Deferred tax liabilities

Total liabilities assumed

5 unchanged sentences

Pro Forma Financial Information

The following table presents certain unaudited pro-forma financial information for the three months ended March 31, 2022 as if the consolidation of Entasis and La Jolla occurred on January 1, 2021.

The following table presents certain unaudited pro-forma financial information for the three and six months ended June 30, 2022 as if the consolidation of Entasis and La Jolla occurred on January 1, 2021.

The unaudited pro forma financial information is presented for informational purposes only, and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place on January 1, 2021, or of results that may occur in the future.

1 unchanged sentence

common stock and warrants, fair value adjustments to inventory, amortization of intangible assets, and interest expense on deferred royalty obligations and acquisition-related costs.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Net income attributable to Innoviva stockholders

Net income (loss) attributable to Innoviva stockholders

Equity and Long-term Investments and Fair Value Measurements

16 unchanged sentences

s board of directors, subject to certain conditions and qualifications set forth in the amended and restated investor rights agreement.

As of March 31, 2023 , three of the eight members of Armata’s board of directors are also members of the board of directors of Innoviva.

As of March 31, 2023 and December 31, 2022, the Company and ISO owned approximately 69.4 % , of Armata’s common stock.

As of June 30, 2023 , three of the seven members of Armata’s board of directors are also members of the board of directors of Innoviva.

As of June 30, 2023 and December 31, 2022, the Company and ISO owned approximately 69.4 % , of Armata’s common stock.

On January 10, 2023, we entered into a Secured Convertible Credit Agreement (the “Credit Agreement”) with Armata, under which we extended a one-year convertible note (the "Armata Convertible Note") in an aggregate amount of $ 30.0 million at an interest rate of 8.0 % per annum.

15 unchanged sentences

We account for the Armata Convertible Note as a trading security, measured at fair value using a Monte Carlo simulation model with the probability of certain qualified events and the assumptions of risk-free rate, volatility of stock price and timing of certain qualified events.

As of March 31, 2023, the fair values of our holdings of Armata common stock, warrants and the Armata Convertible Note were estimated at $ 41.9 million, $ 13.1 million and $ 32.8 million, respectively.

As of June 30, 2023, the fair values of our holdings of Armata common stock, warrants and the Armata Convertible Note were estimated at $ 28.6 million, $ 6.5 million and $ 31.2 million, respectively.

As of December 31, 2022 , the fair values of our holdings of Armata common stock and warrants were estimated at $ 31.1 million and $ 8.1 million, respectively.

For the Armata common stock and warrants, we recorded $ 15.8 million in unrealized gain and $ 4.2 million in unrealized loss for the three months ended March 31, 2023 and 2022, respect ively, as changes in fair values of equity method i nvestments, net, in the unaudited condensed consolidated statements of income.

For the Armata Convertible Note, we recorded $ 2.8 million unrealized gain as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated statement of income for the three months ended March 31, 2023.

For the Armata common stock and warrants, we recorded $ 19.9 million and $ 4.1 million in unrealized loss for the three and six months ended June 30, 2023, respectively, as changes in fair values of equity method i nvestments, net, in the unaudited condensed consolidated statements of income.

During the three and six months ended June 30, 2022, we recorded $ 42.8 million and $ 47.0 million unrealized loss, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income.

For the Armata Convertible Note, we recorded $ 1.7 million unrealized loss and $ 1.1 million unrealized gain as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statement of income for three and six months ended June 30, 2023, respectively.

The summarized financial information, including the portion we do not own, is presented for Armata on a one quarter lag as follows:

Income Statement Information

Three Months Ended December 31,

Three Months Ended March 31,

Six Months Ended March 31,

(In thousands)

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ITH has the right to designate one member to InCarda’s board of directors.

As of March 31, 2023 , one of InCarda’s eight board members was designated by ITH.

We did not exercise the InCarda 2020 Warrant which expired in March 2023 and wrote off its carrying value of $ 0.1 million during the three months ended March 31, 2023.

As of June 30, 2023, no ne of InCarda’s six board members was designated by ITH.

We did not exercise the InCarda 2020 Warrant which expired in March 2023 and wrote off its carrying value of $ 0.1 million during the six months ended June 30, 2023.

On March 9, 2022, TRC entered into a Note and Warrant Purchase Agreement (the “InCarda Agreement”) with InCarda to acquire a convertible promissory note (the “InCarda Convertible Note”) and warrants (the “InCarda 2022 Warrant”) for $ 0.7 million.

3 unchanged sentences

In connection with the new round of financing, InCarda recapitalized its equity structure resulting in TRC owning 4,093,886 shares of InCarda’s common stock, 37,350 shares of its Series A-1 preferred stock, 20,469,432 shares of its Series C preferred stock, 8,771,780 shares of its Series D-1 preferred stock, 3,369,802 shares of its Series D-2 preferred stock, a warrant to purchase 5,117,358 shares of its Series C preferred stock at $ 0.73 per share and a warrant to purchase 2,490,033 shares of its Series D-1 preferred stock at $ 0.20 per share.

As of March 31, 2023 and December 31, 2022, we held 9 % of InCarda equity ownership.

As of June 30, 2023 and December 31, 2022 , we held 8.1 % and 9.0 % of InCarda equity ownership, respectively.

Our investment in InCarda does not provide us with the ability to control or have significant influence over InCarda’s operations.

8 unchanged sentences

We recognized an impairment charge of $ 9.0 million during the second quarter of 2022.

As of March 31, 2023, we recorded $ 6.8 million in fair value of InCarda’s Series C preferred stock and $ 0.5 million in fair value of Series D warrants (the “InCarda Preferred Stock Warrants”).

Due to certain changes in InCarda’s business operations during the second quarter of 2023, TRC reassessed the value of its investments in InCarda using the Option Pricing Model methodology.

Key assumptions used in the valuation model included an expected holding period of two years , a risk-free interest rate of 4.9 %, a dividend yield of 0.0 % and an estimated volatility of 114.2 %.

The estimated volatility was calculated based on the historical volatility of a selected peer group of public companies comparable to InCarda.

We recognized an impairment charge of $ 2.9 million during the second quarter of 2023.

As of June 30, 2023 , we recorded $ 4.8 million in fair value of InCarda’s Series C preferred stock and $ 0.2 million in fair value of Series D warrants (the “InCarda Preferred Stock Warrants”).

As of December 31, 2022, we recorded $ 6.8 million in fair value of InCarda’s Series C preferred stock and $ 0.6 million in fair value of the InCarda Preferred Stock Warrants.

As of March 31, 2023 and December 31, 2022, we recognized $ 3.2 million for InCarda’s Series D-1 preferred stock, Series D-2 preferred stock, and common stock using the measurement alternative.

During the three months ended March 31, 2023 and 2022, we recorded $ 0.1 million in net unrealized loss and $ 0.6 million in net unrealized gain, respectively, as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated statements of income.

As of June 30, 2023 and December 31, 2022, we recognized $ 2.7 million and $ 3.2 million, respectively, for InCarda’s Series D-1 preferred stock, Series D-2 preferred stock, and common stock using the measurement alternative.

During the three and six months ended June 30, 2023 , we recorded $ 2.9 million and $ 3.0 million in net unrealized loss, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income.

During the three and six months ended June 30, 2022, we recorded $ 9.6 million and $ 9.0 million in net unrealized loss, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income.

Equity Investment in ImaginAb

5 unchanged sentences

On March 14, 2023, ITH entered into a securities purchase agreement with ImaginAb to purchase 270,568 shares of ImaginAb Series C-2 preferred stock for $ 0.6 million.

As of March 31, 2023, one of ImaginAb’s six board members was designated by ITH.

As of March 31, 2023 and December 31, 2022, we held 12.6 % and 12.7 %, respectively, of ImaginAb equity ownership.

As of June 30, 2023 , one of ImaginAb’s six board members was designated by ITH.

As of June 30, 2023 and December 31, 2022, we held 12.6 % and 12.7 %, respectively, of ImaginAb equity ownership.

Our investment in ImaginAb does not provide us with the ability to control or have significant influence over ImaginAb’s operations.

3 unchanged sentences

Because ImaginAb’s equity securities are not publicly traded and do not have a readily determinable fair value, we account for our investment in ImaginAb’s Series C preferred stock, Series C-2 preferred stock and common stock using the measurement alternative.

As of March 31, 2023 and December 31, 2022, $ 7.0 million and $ 6.4 million, respectively, was recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets and there was no change to the fair value of our investment.

As of June 30, 2023 and December 31, 2022, $ 7.0 million and $ 6.4 million, respectively, was recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets and there was no change to the fair value of our investment.

Convertible Promissory Note in Gate Neurosciences

11 unchanged sentences

On February 2, 2023, ITH entered into a Note Amendment Agreement (the “Note Amendment Agreement”) with Gate to amend the Gate Convertible Note.

Pursuant to the Note Amendment Agreement, the principal amount of the Gate Convertible Note was increased from $ 15.0 million to $ 21.5 million, which represents the original principal, accrued interest as of the amendment date and additional cash investment of $ 5.0 million.

All other material terms of the Gate Convertible Note were unchanged.

We have accounted for the Gate Convertible Note as a trading security, measured at fair value using a Monte Carlo simulation model with the probability of certain qualified events and the assumptions of equity value of Gate, risk-free rate, expected stock price, volatility of its peer companies, and the time until a financing is raised.

As of March 31, 2023 and December 31, 2022, the fair value of the Gate Convertible Note was estimated at $ 21.5 million and $ 15.7 million, respectively, and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets.

We rec orded $ 0.7 million and $ 0.2 million unrealized loss, respectively, as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated state ment of income for the three months ended March 31, 2023 and 2022, respectively.

As of June 30, 2023 and December 31, 2022, the fair value of the Gate Convertible Note was estimated at $ 22.1 million and $ 15.7 million, respectively, and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets.

We rec orded $ 0.6 million net unrealized gain as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated state ment of income for the three months ended June 30, 2023 .

We recorded $ 0.3 million and $ 0.1 million unrealized gain as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statement of income for the three and six months ended June 30, 2022, respectively.

Equity Investment in Nanolive

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ITH has the right to designate one member to Nanolive’s board.

ITH also has the right to designate another member, who will be mutually acceptable to ITH and another majority common stockholder, to Nanolive’s board.

As of March 31, 2023 , one of Innoviva designees is serving on Nanolive’s seven -member board.

As of March 31, 2023 and December 31, 2022, we held 15.3 % and 15.5 %, respectively, of Nanolive equity ownership.

ITH also has the right to designate another member, who will be mutually acceptable to ITH and another stockholder, to Nanolive’s board.

As of June 30, 2023 , one of Innoviva designees is serving on Nanolive’s seven -member board.

As of June 30, 2023 and December 31, 2022, we held 15.3 % and 15.5 %, respectively, of Nanolive equity ownership.

Our investment in Nanolive does not provide us with the ability to control or have significant influence over Nanolive’s operations.

3 unchanged sentences

Because Nanolive’s equity securities are not publicly traded and do not have a readily determinable fair value, we account for our investment in Nanolive’s Series C preferred stock using the measurement alternative.

As of March 31, 2023 and December 31, 2022, $ 10.6 million was recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets and there was no change to the fair value of our investment.

As of June 30, 2023 and December 31, 2022, $ 10.6 million was recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets and there was no change to the fair value of our investment.

Available-for-Sale Securities

1 unchanged sentence

Available-for-sale securities are summarized below:

March 31, 2023

June 30, 2023

(In thousands)

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

As of March 31, 2023 , all investments were money market funds, and there was no credit loss recognized.

As of June 30, 2023 , all investments were money market funds, and there was no credit loss recognized.

Fair Value Measurements

Our available-for-sale securities, equity and long-term investments and contingent value rights are measured at fair value on a recurring basis and our debt is carried at amortized cost basis.

Estimated Fair Value Measurements as of March 31, 2023 Using:

Estimated Fair Value Measurements as of June 30, 2023 Using:

Types of Instruments

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The fair values of our 2025 Notes and 2028 Notes are based on recent trading prices of the respective instruments.

The fair values of our 2023 Notes, which were fully paid off in January 2023, were also measured based on their trading prices.

The fair values of our 2023 Notes, which were fully paid off in January 2023, were also based on their trading prices.

Goodwill and Intangible Assets

Goodwill and intangible assets acquired are recognized at fair value as of the acquisition date.

The carrying amount of goodwill as of March 31, 2023 was $ 27.9 million .

The carrying amount of goodwill as of June 30, 2023 and December 31, 2022 was $ 14.9 million and $ 26.7 million, respectively .

We have no t recognized any impairment losses related to goodwill during the periods presented.

Intangible assets with definite lives are amortized over their estimated useful lives.

The carrying basis and accumulated amortization of recognized intangible assets as of March 31, 2023 and December 31, 2022 were as follows:

March 31, 2023

The carrying basis and accumulated amortization of recognized intangible assets as of June 30, 2023 and December 31, 2022 were as follows:

June 30, 2023

(In thousands)

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Collaboration agreement

Intangible assets recognized as a result of the acquisition of Entasis amounted to $ 106.7 million, which consist of Entasis’

Intangible assets recognized as a result of the acquisition of Entasis amounted to $ 106.7 million, which consisted of Entasis’

in-process research and development related to its antibacterial therapeutic product candidates and a collaboration agreement amounting to $ 71.3 million and $ 35.4 million, respectively.

The useful l ives of these intangible assets will be determined upon commercialization of the underlying product candidates;

thus, no amortization expense of determinable assets was recognized for the three months ended March 31, 2023.

Following the FDA approval of XACDURO ® in May 2023, we started amortizing $ 68.7 million of the then in-process research and development as a marketed product, as well as the collaboration agreement, over their estimated useful lives.

The useful l ife of the remaining in-process research and development of $ 2.6 million will be determined upon commercialization of the underlying product candidate;

thus, no amortization expense for this intangible asset was recognized for the periods presented.

Intangible assets recognized as a result of the acquisition of La Jolla amounting to $ 151.0 million pertain to product rights and developed technologies on La Jolla’s currently marketed products.

These are intangible assets with determinable lives and are amortized over their estimated useful lives.

We recognized amortization expense of $ 3.8 million for the period through March 31, 2023 .

We recognized amortization expense of $ 5.0 million and $ 8.8 million for the three and six months ended June 30, 2023 , respectively.

Future amortization expense is expected to be $ 13.0 million for the remainder of 2023, $ 25.8 million for each of the years from 2024 to 2027 and $ 124.5 million thereafter.

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Total inventory

As of March 31, 2023 , total inventory included net fair value adjustments resulting from the acquisition of La Jolla of approximately $ 42.7 million , which will be amortized and recognized as cost of products sold when sales occur in future periods.

The fair value adjustments recorded as part of cost of products sold amounted to $ 6.8 million for the three months ended March 31, 2023.

As of June 30, 2023 and December 31, 2022, total inventory included net fair value adjustments resulting from the acquisition of La Jolla of approximately $ 36.4 million and 49.5 million, respectively , which will be amortized and recognized as cost

of products sold when sales occur in future periods.

The fair value adjustments recorded as part of cost of products sold amounted to $ 7.0 million and $ 13.8 million for the three and six months ended June 30, 2023, respectively.

Other Accrued Liabilities

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Total other accrued liabilities

Amount in “Other”

as of March 31, 2023 includes $ 3.8 million in ISP Fund LP’s liability for unsettled securities transactions.

Other Long-term Liabilities

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The following table summarizes stock-based compensation expense:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Risk-free interest rate

3.50 % - 3.76 %

2.84 % - 3.03 %

3.50 % - 4.0 %

1.6 % - 3.03 %

Expected term (in years)

38.8 % - 39.0 %

38.0 % - 38.5 %

38.8 % - 40.5 %

Dividend yield

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$ 5.22 - $ 5.64

$ 6.98 - $ 7.18

$ 5.22 - $ 5.64

$ 6.98 - $ 7.73

Stockholders' Equity

On October 31, 2022, our board of directors authorized a new share repurchase program under which we may repurchase up to $ 100.0 million of our outstanding shares of common stock.

The timing and amount of any share repurchases under the share repurchase program will be determined by our management in its discretion based on ongoing assessments of the capital needs of the business, the market price of our common stock, prevailing stock prices, general market conditions and other considerations.

Share repurchases under the program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, in block trades, accelerated share repurchase transactions, exchange transactions, or any combination thereof or by other means in accordance with federal securities laws.

The repurchase program authorizes the repurchase by the Company of its common stock in open market transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), privately negotiated transactions, in block trades, accelerated share repurchase transactions, exchange transactions, or any combination thereof or by other means in accordance with federal securities laws.

The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion.

Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions.

The actual means and timing of any shares purchased under the program will depend on a variety of factors, including ongoing assessments of the capital needs of the business, the market price of our common stock, prevailing stock prices, general market conditions and other considerations.

This program has no termination date, may be suspended or discontinued at any time at our discretion, and does not obligate us to acquire any amount of common stock.

For the three months ended March 31, 2023 , we have repurchased 3,419,476 shares in the open market at an average price of $ 11.79 per share for a total amount of approximately $ 40.3 million.

For the six months ended June 30, 2023 , we have repurchased 4,194,980 shares in the open market at an average price of $ 11.81 per share for a total amount of approximately $ 49.5 million.

All the repurchased shares were retired.

Subsequent to March 31, 2023 and through May 2, 2023, we have repurchased 524,863 shares in the open market at an average price of $ 11.70 per share for a total amount of approximately $ 6.1 million.

Subsequent to June 30, 2023 and through July 26, 2023, we have repurchased 133,325 shares in the open market at an average price of $ 12.60 per share for a total amount of approximately $ 1.7 million.

Our debt consists of the following:

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The following table sets forth total interest expense recognized related to the 2023 Notes:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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Net carrying amount

The following table sets forth total interest expense recognized related to the 2025 Notes for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table sets forth total interest expense recognized related to the 2025 Notes for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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Net carrying amount

The following table sets forth total interest expense recognized related to the 2028 Notes:

Three Months Ended March 31,

The following table sets forth total interest expense recognized related to the 2028 Notes for the three and six months ended June 30, 2023 and 2022:

Three months ended June 30,

Six months ended June 30,

(In thousands)

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Debt Maturities

The aggregate scheduled maturities of our convertible debt as of March 31, 2023 were as follows:

The aggregate scheduled maturities of our convertible debt as of June 30, 2023 were as follows:

(In thousands)

March 31, 2023

June 30, 2023

Years ending December 31:

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The La Jolla Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $ 225.0 million.

For the three months ended March 31, 2023, we recognized interest expense of $ 1.2 million.

The carrying value of the deferred royalty obligation as of M arch 31, 2023 was $ 70.3 million, $ 67.1 million of which was classified as part of other long-term liabilities and the remaining $ 3.2 mil lion was classified as other accrued liabilities in the condensed consolidated balance sheet.

The carrying value of the deferred royalty obligation as of December 31, 2022 was $ 70.6 million, $ 67.9 million of which was classified as part of other long-term liabilities and the remaining $ 2.7 million was classified as other accrued liabilities in the condensed

consolidated balance sheet.

During the three months ended March 31, 2023, we made royalty payments to HCR of $ 1.4 million.

The deferred royalty obligation was valued using Level 3 inputs, and its carrying value as of March 31, 2023 approximates fair value.

For the three and six months ended June 30, 2023 , we recognized interest expense of $ 1.3 million and $ 2.5 million, respectively .

The carrying value of the deferred royalty obligation as of June 30, 2023 was $ 70.4 million, $ 66.0 million of which was classified as part of other long-term liabilities and the remaining $ 4.4 mil lion was classified as other accrued liabilities in the condensed consolidated balance sheet.

During the six months ended June 30, 2023 , we made royalty payments to HCR of $ 2.7 million.

The deferred royalty obligation was valued using Level 3 inputs, and its carrying value as of June 30, 2023 approximates fair value.

The fair value of the deferred royalty obligation was calculated as the discounted deferred royalty obligations based on risk-adjusted revenue projections for GIAPREZA ® .

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Under the terms of the La Jolla Royalty Agreement, if we are unable to meet certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA ® , HCR would have the right to terminate the La Jolla Royalty Agreement and demand payment of either $ 125.0 million or $ 225.0 million (depending on which obligation we have failed to meet) less aggregate royalties already paid to HCR.

As of March 31, 2023 , inclusive of the aggregate royalties paid to HCR by La Jolla under the La Jolla Royalty Agreement prior to our acquisition, La Jolla paid $ 14.1 million of aggregate royalties to HCR.

As of June 30, 2023 , inclusive of the aggregate royalties paid to HCR by La Jolla under the La Jolla Royalty Agreement prior to our acquisition, La Jolla paid $ 15.4 million of aggregate royalties to HCR.

In the event that we fail to pay such amount if and when due in a timely manner, HCR would have the right to foreclose on the GIAPREZA ® -related assets.

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We determined the fair value of each derivative by assessing the probability of each event occurring, as well as the potential repayment amounts and timing of such repayments that would result under various scenarios.

As a result of this assessment, we determined that the fair value of the embedded derivatives is immaterial and, therefore, not recognized as of March 31, 2023 and December 31, 2022.

As a result of this assessment, we determined that the fair value of the embedded derivatives is immaterial and, therefore, not recognized as of June 30, 2023 and December 31, 2022.

We estimate the fair value of the embedded derivatives for each reporting period until either the features lapse or the La Jolla Royalty Agreement is terminated, whichever occurs first.

4 unchanged sentences

The components of lease cost are as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

2 unchanged sentences

Total lease costs

As of March 31, 2023, our operating leases have weighted-average remainin g term of approximately 2.6 years and the weighted average discount rate on our operating lease liabilities was 7.6 %.

As of June 30, 2023, our operating leases have weighted-average remainin g term of approximately 2.7 years and the weighted average discount rate on our operating lease liabilities was 8.4 %.

We have not presented the comparative information above as our operating lease in the first quarter of 2022 was not material.

Future minimum payments on our operating leases as of March 31, 2023 were as follows:

Future minimum payments on our operating leases as of June 30, 2023 were as follows:

(In thousands)

March 31, 2023

Years ending December 31:

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We are not currently a party to any material legal proceedings except as discussed below.

On February 15, 2022, La Jolla received a paragraph IV notice of certification (the “Notice Letter”) from Gland Pharma Limited (“Gland”) advising that Gland had submitted an Abbreviated New Drug Application (“ANDA”) to the FDA seeking approval to manufacture, use or sell a generic version of GIAPREZA® in the U.S.

On February 15, 2022, La Jolla received a paragraph IV notice of certification (the “First Notice Letter”) from Gland Pharma Limited (“Gland”) advising that Gland had submitted an Abbreviated New Drug Application (“ANDA”) to the FDA seeking approval to manufacture, use or sell a generic version of GIAPREZA ® in the U.S.

prior to the expiration of U.S.

and 11,219,662 (the “GIAPREZA ® Patents”), which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”).

The Notice Letter alleges that the GIAPREZA® Patents are invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Gland’s ANDA.

The First Notice Letter alleges that the GIAPREZA ® Patents are invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Gland’s ANDA.

On March 29, 2022, La Jolla filed a complaint for patent infringement of the GIAPREZA ® Patents against Gland and certain related entities in the United States District Court for the District of New Jersey in response to Gland’s ANDA filing.

In accordance with the Hatch-Waxman Act, because GIAPREZA® is a new chemical entity and La Jolla filed a complaint for patent infringement within 45 days of receipt of the Notice Letter, the FDA cannot approve Gland’s ANDA any earlier than 7.5 years from the approval of the GIAPREZA® NDA unless the District Court finds that all of the asserted claims of the patents-in-suit are invalid, unenforceable and/or not infringed.

In accordance with the Hatch-Waxman Act, because GIAPREZA ® is a new chemical entity and La Jolla filed a complaint for patent infringement within 45 days of receipt of the First Notice Letter, the FDA cannot approve Gland’s ANDA any earlier than 7.5 years from the approval of the GIAPREZA ® NDA unless the District Court finds that all of the asserted claims of the patents-in-suit are invalid, unenforceable and/or not infringed.

On February 22, 2023, La Jolla received a paragraph IV notice of certification (the “Second Notice Letter”) from Gland advising that Gland had amended its ANDA filing to include a paragraph IV certification alleging that all claims of the newly-issued and Orange Book-listed U.S.

11,559,559 (“the ’559 Patent”), which covers GIAPREZA ® , are invalid, unenforceable and/or not infringed.

On March 22, 2023, La Jolla filed a First Amended Complaint in this litigation adding Gland’s marketing and distribution partners for its ANDA angiotensin II product, Fresenius Kabi USA LLC and Fresenius Kabi SwissBiosim GmbH, as co-defendants.

On April 7, 2023, La Jolla filed a Second Amended Complaint in response to the Second Notice Letter, adding claims that the manufacture, use, sale, offer for sale, or import of Gland’s ANDA angiotensin II product will infringe the ’559 Patent.

We intend to vigorously enforce our intellectual property rights relating to GIAPREZA ® .

Given the early stage of this matter, we cannot reasonably estimate a potential future loss or a range of potential future losses, if any, and have not recorded a contingent liability accrual as of March 31, 2023.

Indemnification

4 unchanged sentences

To date, we have not incurred any material costs and have not accrued any material liabilities in the condensed consolidated financial statements as a result of these provisions.

We recorded a provision for income tax expe nse of $ 6.3 million and $ 6.9 million f or the three months ended March 31, 2023 and 2022, respectively.

The Company’s effective income tax rate for the three months ended March 31, 2023 and 2022 was 15.3 %.

The income tax expense for the three months ended March 31, 2023 and 2022 was determined based upon estimates of the Company’s effective income tax rates in various jurisdictions.

Our effective tax rate for the three months ended March 31, 2023 was lower than the benefit computed at the U.S.

federal statutory income tax rate due primarily to non-deductible expenses.

We recorded a provision for income tax expe nse of $ 4.5 million and $ 10.8 million f or the three and six months ended June 30, 2023 , respectively, compared to the recorded provision for income tax benefit of $ 0.9 million and for income tax expense of $ 6.0 million for the three and six months ended June 30, 2022, respectively.

The Company’s effective income tax rate for the six months ended June 30, 2023 was 25.7 % compared to 4.3 % for the same period in 2022.

The income tax expense for the six months ended June 30, 2023 and 2022 was determined based upon estimates of the Company’s effective income tax rates in various jurisdictions.

Our effective tax rate for the six months ended June 30, 2023 included the U.S.

federal statutory income tax rate and state income tax rates in different states.

Subsequent Events

On July 10, 2023, ISO and Armata entered into a Credit and Security Agreement, under which we extended a term loan to Armata (the “Credit and Security Agreement”) in an aggregate amount of $ 25.0 million.

The term loan is subject to an interest rate of 14 % per annum and is due to mature on January 10, 2025 .

The Credit and Security Agreement is secured by substantially all of the assets of Armata and its domestic and foreign material subsidiaries.

On July 10, 2023, ISO and Armata also executed an amendment to the Armata Convertible Note, discussed in Note 6 “Equity and Long-term Investments and Fair Value Measurements”, extending the maturity date from January 10, 2024 to January 10, 2025.

In addition, Armata entered an amendment to the second amended and restated voting agreement dated February 9, 2022 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 the aggregate, more than 49.5 % of the total number of shares of Armata’s common stock for voting on the matters related to election or removal of Armata’s board members, amend the bylaws of Armata to reduce the maximum number of directors, or set the number of directors who may serve on the board of Armata.

The voting agreement will expire on the earlier of the fifth anniversary of the original agreement effective date, January 26, 2021, or the approval by the FDA of any of Armata’s product candidates for marketing and commercial distribution.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Important factors that we believe could cause actual results or events to differ materially from our forward‑looking statements include, but are not limited to, risks related to:

lower than expected future royalty revenue from respiratory products partnered with GSK, the commercialization of RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, GIAPREZA®and XERAVA® in the jurisdictions in which these products have been approved;

lower than expected future royalty revenue from respiratory products partnered with GSK, the commercialization of RELVAR ® /BREO ® ELLIPTA ® , ANORO ® ELLIPTA ® , GIAPREZA ® , XERAVA ® and XACDURO ® in the jurisdictions in which these products have been approved;

the strategies, plans and objectives of the Company (including the Company's growth strategy and corporate development initiatives);

32 unchanged sentences

Our commercial and marketed products include GIAPREZA ® (angiotensin II), approved to increase blood pressure in adults with septic or other distributive shock, and XERAVA ® (eravacycline) approved for the treatment of complicated intra-abdominal infections in adults.

Our development pipeline includes medicines for the treatment of bacterial infections, such as our lead asset sulbactam-durlobactam (“SUL-DUR”).

Our development pipeline includes medicines for the treatment of bacterial infections.

3 unchanged sentences

In particular, our recent acquisitions of Entasis and La Jolla created a robust hospital and infectious disease platform.

First Quarter 2023 and Recent Highlights:

Second Quarter 2023 and Recent Highlights:

GSK Net Sales

First quarter 2023 net sales of RELVAR ® /BREO ® ELLIPTA ® by GSK were $339.2 million with $122.4 million in net sales from the U.S.

Second quarter 2023 net sales of RELVAR ® /BREO ® ELLIPTA ® by GSK were $363.0 million with $149.8 million in net sales from the U.S.

market and $213.2 million from non-U.S.

First quarter 2023 net sales of ANORO ® ELLIPTA ® by GSK were $145.1 million with $62.2 million net sales from the U.S.

Second quarter 2023 net sales of ANORO ® ELLIPTA ® by GSK were $173.3 million with $85.5 million net sales from the U.S.

market and $87.8 million from non-U.S.

Corporate Updates

Innoviva’s recently established subsidiary, Innoviva Specialty Therapeutics, which integrated Entasis and La Jolla and, in conjunction with these affiliates, markets GIAPREZA ® and XERAVA ® as well as advances the development and commercialization of SUL-DUR and zoliflodacin.

On January 10, 2023, the Company’s wholly owned subsidiary, Innoviva Strategic Opportunities LLC, invested $30.0 million in a convertible promissory note of Armata Pharmaceuticals, Inc.

to support the clinical development of its multiple innovative bacteriophage assets as well as advanced biologics cGMP manufacturing capabilities.

On February 2, 2023, the Company’s wholly owned subsidiary, Innoviva TRC Holding LLC, invested $5.0 million in a convertible promissory note of Gate Neurosciences Inc.

to support the clinical development of its differentiated pipeline of neuropsychiatric therapeutics.

During the first quarter of 2023, Innoviva repurchased approximately 3.4 million shares of its outstanding common stock for $40.3 million.

In January 2023, Innoviva paid off the remaining principal balance of $96.2 million of the 2023 Notes.

During the second quarter of 2023, Innoviva repurchased 775,504 shares of its outstanding common stock for $9.2 million.

On July 11, 2023, Innoviva’s wholly owned subsidiary, Innoviva Strategic Opportunities, entered into a credit and security agreement with Armata Pharmaceuticals, Inc.

ARMP) (“Armata”) and invested $25.0 million to advance Armata’s pipeline of therapeutic phage candidates and support the build-out of its state-of-the art cGMP manufacturing facility.

On July 11, 2023, Innoviva director, Deborah Birx, resigned from Innoviva Board and joined Armata as Chief Executive Officer.

Clinical Updates

On April 17, 2023, the FDA’s Antimicrobial Drugs Advisory Committee ("AMDAC") unanimously voted 12-0 in support of approval of SUL-DUR based on a favorable benefit-risk assessment for the treatment of adults with hospital-acquired bacterial pneumonia ("HABP") and ventilator-associated bacterial pneumonia ("VABP") caused by susceptible strains of Acinetobacter baumannii-calcoaceticus complex (Acinetobacter).

The SUL-DUR New Drug Application ("NDA"), filed by Entasis was accepted and granted Priority Review by the FDA in November 2022, with a Prescription Drug User Fee Act ("PDUFA") target action date of May 29, 2023.

Phase 3 Zoliflodacin study on track to complete enrollment in second half of 2023.

Zoliflodacin is a novel, first-in-class oral antibiotic in development for the treatment of uncomplicated gonorrhea.

On May 23, 2023, Innoviva’s wholly owned subsidiary, Innoviva Specialty Therapeutics, received FDA’s approval of XACDURO ® (sulbactam for injection;

durlobactam for injection), co-packaged for intravenous use in patients 18 years of age and older for the treatment of hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP) caused by susceptible isolates of Acinetobacter baumannii-calcoaceticus complex ( Acinetobacter ).

The company is preparing to launch XACDURO ® later this year.

Recruitment is now complete in the registrational Phase 3 Zoliflodacin study.

Oral Zoliflodacin is a novel, first-in-class oral antibiotic in development for the treatment of uncomplicated gonorrhea infection.

Top-line results for this ongoing Phase 3 trial are expected in late 2023.

Collaboration Arrangement with GSK

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Three Months Ended

Six Months Ended

(In thousands)

4 unchanged sentences

*Not Meaningful

Total net royalty revenue decreased to $56.9 million for the three months ended March 31, 2023, compared to $90.1 million for the same period a year ago.

The decrease of total net royalty revenue for the three months ended March 31, 2023, compared to the same period a year ago was primarily due to the sale of our ownership interest in TRC, which received royalties stemming from sales of TRELEGY ® ELLIPTA ® .

For the three months ended March 31, 2023, there was a decrease in the net sales of RELVAR ® /BREO ® ELLIPTA ® due to pricing pressures in the U.S.

market and foreign currency rate changes.

Total net royalty revenue decreased to $62.3 million and $119.1 million for the three and six months ended June 30, 2023, compared to $108.2 million and $198.3 million, respectively, for the same period a year ago.

The decrease of total net royalty revenue was primarily due to the sale of our ownership interest in TRC, which received royalties stemming from sales of TRELEGY ® ELLIPTA ® in 2022.

Net Product Sales

Net product sales we recognized for the three months ended March 31, 2023 was $11.5 million, consisting of net sales of GIAPREZA ® and XERAVA ® for $9.0 million and $2.5 million, respectively.

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

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

License Revenue

We recognized $8.0 million in license revenue for the three months ended March 31, 2023 as a result of achievement of a regulatory milestone under our license agreement with Everest.

We recognized $8.0 million in license revenue for the first quarter of 2023 as a result of achievement of a regulatory milestone under our license agreement with Everest.

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

Research and Development

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Three Months Ended

Six Months Ended

(In thousands)

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Three Months Ended

Six Months Ended

(in thousands)

3 unchanged sentences

Total research and development expense

*Not Meaningful

Research and development expenses, which are mainly attributable to Entasis’

product development efforts for SUL-DUR, were $12.6 million, for the three months ended March 31, 2023.

Research and development expenses for the three months ended March 31, 2022 were attributable to the product development efforts of Entasis from February 17, 2022 to March 31, 2022.

product development efforts for XACDURO ® , were $15.0 million and $27.6 million, for the three and six months ended June 30, 2023, respectively.

Research and development expenses for the three and six months ended June 30, 2022 were attributable to the product development efforts of Entasis from February 17, 2022.

Selling, General & Administrative

1 unchanged sentence

Three Months Ended

Six Months Ended

(In thousands)

Selling, general and administrative

*Not Meaningful

Selling, general and administrative expenses increased for the three months ended March 31, 2023, compared to the same period in 2022 mainly due to the consolidation of Entasis’

operating expenses starting February 17, 2022 and the consolidation of La Jolla’s operating expenses starting August 22, 2022.

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

Interest and dividend income and other expense, net

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Interest and dividend income increased for the three months ended March 31, 2023, compared to the same periods a year ago due to higher interest rates and higher average balances of our cash equivalents, money market funds and other interest-bearing investments.

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

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

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The interest expense included the contractual interest expense and the amortization of debt issuance costs for our 2023 Notes, 2025 Notes and 2028 Notes, as well as effective interest expense on our deferred royalty obligation.

Interest expense for the three months ended March 31, 2023 included the amount on the 2023 Notes until the notes were fully paid off on January 15, 2023.

Interest expense for the three months ended March 31, 2022 included the amount on the 2028 Notes from March 7, 2022, the date of issuance, through March 31, 2022.

The increase for the three months ended March 31, 2023, compared to March 31, 2022, was mainly due to interest expense on our deferred royalty obligation and a higher average debt balance.

Interest expense for the six months ended June 30, 2023 included the amount on the 2023 Notes until the notes were fully paid off on January 15, 2023.

Interest expense for the three and six months ended June 30, 2022 included the amount on the 2028 Notes from March 7, 2022, the date of issuance, through June 30, 2022.

The increase for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, was mainly due to interest expense on our deferred royalty obligation and a higher average debt balance.

Loss on Debt Extinguishment

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The changes in fair values of equity method investments for the three months ended March 31, 2023 posted a gain compared to a loss position during the same period in 2022 mainly due to Armata’s higher stock price in 2023.

The changes in fair values of equity method investments for the three and six months ended June 30, 2023 posted losses mainly due to Armata's lower stock prices in 2023.

The changes in fair values of other equity and long-term investments primarily reflected the realized gains and losses and net unrealized gains and losses in our strategic investments in InCarda, Gate, and those investments managed by ISP Fund LP.

Provision for Income Taxes

We recorded a provision for income tax expense of $6.3 million for the three March 31, 2023, compared to provision for income tax expense of $6.9 million for the three months ended March 31, 2022.

The effective income tax rate for the three months ended March 31, 2023 and 2022 was 15.3%.

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

The effective income tax rate for the six months ended June 30, 2023 and 2022 was 25.7% and 4.3%, respectively.

Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interest for the three months ended March 31, 2022 represented $25.1 million for the 85% share of net income in Theravance Respiratory Company, LLC for Theravance Biopharma and $3.0 million for the 40% share of net loss in Entasis Therapeutics Holdings, Inc.

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

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

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Since our inception, we have financed our operations primarily through private placements and public offerings of equity and debt securities and payments received under collaboration arrangement.

For the three months ended March 31, 2023, we generated gross royalty revenues from GSK of $60.3 million, net product sales of $11.5 million and license revenue of $8.0 million.

Net cash and cash equivalents totaled $144.0 million, royalties receivables from GSK totaled $60.3 million and accounts receivable associated with our product sales and license revenue totaled $15.5 million as of March 31, 2023.

For the six months ended June 30, 2023, we generated gross royalty revenues from GSK of $126.0 million, net product sales of $27.2 million and license revenue of $11.0 million.

Net cash and cash equivalents totaled $173.0 million, royalties receivables from GSK totaled $65.7 million and accounts receivable associated with our product sales and license revenue totaled $15.3 million as of June 30, 2023.

Adequacy of Cash Resources to Meet Future Needs

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

Three Months Ended March 31,

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Cash Flows from Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2023 was $25.7 million, consisting primarily of our net income of $34.9 million, adjusted for net non-cash items, which included $13.7 million of net changes in fair value of our investments, $6.8 million of amortization of inventory fair value step-up adjustment, $3.5 million of amortization of capitalized fees and depreciation of property and equipment and $3.8 million of amortization of acquired intangible assets partially offset by increases of $6.1 million in accounts receivable, $5.6 million in receivables from collaboration arrangement and decreases of $3.5 million in accrued interest payable.

Net cash provided by operating activities for the three months ended March 31, 2022 was $98.1 million, consisting primarily of our net income of $37.9 million, adjusted for net non-cash items such as $6.9 million of deferred income tax, $3.5 million of depreciation and amortization, $20.7 million of loss on extinguishment of debt, and $9.4 million decrease in the fair value of our equity and long-term investments and a decrease in receivables from collaborative arrangements of $17.2 million, offset by a reduction of accrued interest payable of $2.8 million.

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

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

Cash Flows from Investing Activities

Net cash used in investing activities for the three months ended March 31, 2023 of $35.7 million primarily consisted of $35.7 million in purchases of equity and other long-term investments and $3.9 million in purchases of equity investments managed by ISP Fund LP.

The use of cash for investing activities was partially offset by net proceeds of $3.9 million from the sale of equity and other investments managed by ISP Fund LP.

Net cash used in investing activities for the three months ended March 31, 2022 of $143.2 million was primarily due to $134.3 million of purchases of equity and other investments managed by ISP Fund LP and $56.2 million investments in Armata, InCarda, and Nanolive, partially offset by $24.3 million of sales of equity investments managed by ISP Fund LP and $23.1 million of cash acquired through the consolidation of Entasis.

Net cash used in investing activities for the six months ended June 30, 2023 of $35.7 million primarily consisted of $35.7 million in purchases of equity and long-term investments and $17.8 million in purchases of equity investments managed by ISP Fund LP.

The use of cash for investing activities was partially offset by net proceeds of $15.3 million from the purchases and sales of other investments managed by ISP Fund LP.

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

Cash Flows from Financing Activities

Net cash used in financing activities for the three months ended March 31, 2023 of $137.0 million was primarily due to the payments of $96.2 million upon maturity of the 2023 Notes in January 2023 and $40.7 million for the repurchase of common stock under our current stock repurchase program.

Net cash used in financing activities for the three months ended March 31, 2022 of $60.3 million was primarily due to the net proceeds of $252.8 million from the issuance of the convertible senior notes due in 2028, offset with $21.0 million purchase of capped call options associated with the 2028 Notes, $165.1 million for the repurchase of the 2023 Notes, and $6.5 million distributions to noncontrolling interest.

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

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

Contractual Obligations

As of March 31, 2023, our notes payable obligation included $192.5 million related to our 2025 Notes and $261.0 million related to our 2028 Notes, which are due in 2025 and 2028, respectively.

As of June 30, 2023, our notes payable obligation included $192.5 million related to our 2025 Notes and $261.0 million related to our 2028 Notes, which are due in 2025 and 2028, respectively.

Under the terms of the 2025 Notes and 2028 Notes, we will make interest payments of 2.5% and 2.125%, respectively, of outstanding principal.

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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-Q

Item 1. Financial Statements