What changed in this filing

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Item 1. Financial Statements

2024-07-31 compared with 2024-05-08 · 191 added, 138 removed, 793 unchanged (29% of the section changed)

16 unchanged sentences

Intangible assets

Deferred tax assets, net

Liabilities and Stockholders’ Equity

18 unchanged sentences

62,562 and 63,307 issued and outstanding as of

March 31, 2024 and December 31, 2023, respectively

June 30, 2024 and December 31, 2023, respectively

Treasury stock:

at cost, 32,005 shares as of March 31, 2024

and December 31, 2023

at cost, nil and 32,005 shares as of

June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

Retained earnings (accumulated deficit)

Accumulated deficit

Total stockholders’ equity

5 unchanged sentences

(In thousands, except per share data)

Three Months Ended March 31,

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

March 31, 2024 and 2023

paid of $ 3,456 in the three months ended June 30, 2024

and 2023, and $ 6,912 in the six months ended

June 30, 2024 and 2023

Net product sales

17 unchanged sentences

Total expenses, net

Income before income taxes

Income tax expense, net

Net income and comprehensive income

Net income per share:

Shares used to compute net income per share:

Income (loss) before income taxes

Income tax expense (benefit), net

Net income (loss) and comprehensive income (loss)

Net income (loss) per share:

Shares used to compute net income (loss) per share:

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended March 31, 2024

Six Months Ended June 30, 2024

Treasury Stock

9 unchanged sentences

Balance as of March 31, 2024

Three Months Ended March 31, 2023

Exercise of stock options and

issuance of common stock units

and stock awards, net of

repurchase of shares to satisfy

tax withholding

Repurchase of common stock

Retirement of treasury stock

Stock-based compensation

Balance as of June 30, 2024

Six Months Ended June 30, 2023

Treasury Stock

7 unchanged sentences

Balance as of March 31, 2023

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

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

35 unchanged sentences

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental Disclosure of Cash Flow Information:

54 unchanged sentences

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 either new or remaining distributors.

Three of our customers each account for 36 %, 26 % and 24 %, respectively, of our net product sales for the three months ended March 31, 2024 .

These same customers account for 37 %, 21 % and 12 %, respectively, of our receivables from net product sales, which are included in “Accounts receivables” in our unaudited condensed consolidated balance sheet as of March 31, 2024.

Three of our customers each account for 32 %, 23 % and 27 %, respectively, of our net product sales for the three months ended June 30, 2024 , and 34 %, 24 % and 25 %, respectively, for the six months ended June 30, 2024 .

These same customers account for 31 %, 21 % and 18 %, respectively, of our receivables from net product sales, which are included in “Accounts receivable” in our unaudited condensed consolidated balance sheet as of June 30, 2024 .

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 29 %, 19 % and 15 %, respectively, of our receivables from net product sales, which are included in “Accounts receivable” in our condensed consolidated balance sheet as of December 31, 2023.

Refer to Item 1A.

46 unchanged sentences

Revenue Recognition

We apply the guidance on principal versus agent considerations under ASC Topic 606, Revenue from Contracts with Customers , to determine the appropriate treatment for the transactions between us and third parties.

We apply the guidance on principal versus agent considerations under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), to determine the appropriate treatment for the transactions between us and third parties.

The classification of transactions under our arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants.

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Similarly, we include approval milestone payments in the transaction price once the product is approved by the applicable regulatory agency.

For a licensing arrangement that includes services, we will recognize revenue over time using an input method, representing the transfer of goods or services as we perform activities over the term of the arrangement.

Research and Development Expenses

11 unchanged sentences

Related Party

Sarissa Capital owned 11.6 % of our outstanding common stock as of March 31, 2024.

Sarissa Capital owned 11.6 % of our outstanding common stock as of June 30, 2024 .

Transactions with Sarissa Capital are described in Note 5, “Consolidated Entity”.

14 unchanged sentences

The Company does not expect the adoption of the amendments to have a significant impact on its financial statements.

Net Income Per Share

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

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding.

Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock and dilutive potential common stock equivalents then outstanding.

Dilutive potential common stock equivalents include the assumed exercise, vesting and issuance of employee stock awards using the treasury stock method, as well as common stock issuable upon assumed conversion of our convertible subordinated notes due 2023 (the “2023 Notes”) 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, 2024 and 2023:

Three Months Ended March 31,

Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for dilutive potential common stock equivalents.

The following table shows the computation of basic and diluted net income (loss) per share for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands except per share data)

Net income, basic

Net income (loss), basic

interest expense on 2023 Notes, net of tax effect

1 unchanged sentence

interest expense on 2028 Notes, net of tax effect

Net income, diluted

Weighted-average shares used to compute basic net income

Net income (loss), diluted

Weighted-average shares used to compute basic net income (loss)

Dilutive effect of 2023 Notes

3 unchanged sentences

incentive plan and employee stock purchase plan

Weighted-average shares used to compute diluted net income

Net income per share

Weighted-average shares used to compute diluted net income (loss)

Net income (loss) per share

Anti-Dilutive Securities

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

Three Months Ended March 31,

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

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

1 unchanged sentence

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 $ 19.1 million, consisting of net sales of GIAPREZA ® , XERAVA ® , and XACDURO ® for $ 12.1 million, $ 4.8 million and $ 2.2 million, respectively, for the three months ended March 31, 2024 .

We derived over 91 % of our net product sales from customers located in the U.S for the period.

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 from customers located in the U.S for the period.

Our net product sales were $ 21.7 million, consisting of net sales of GIAPREZA ® , XERAVA ® , and XACDURO ® for $ 13.1 million, $ 6.2 million and $ 2.4 million, respectively, for the three months ended June 30, 2024 .

Our net product sales were $ 40.7 million, consisting of net sales of GIAPREZA ® , XERAVA ® , and XACDURO ® for $ 25.2 million, $ 10.9 million and $ 4.6 million, respectively, for the six months ended June 30, 2024 .

We derived approximately 87 % and 89 % of our net product sales from customers located in the U.S for the three and six months ended June 30, 2024, respectively.

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 approximately 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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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, 2024 and 2023 were not material.

On April 24, 2024, we entered into an amendment to the Zai Agreement, pursuant to which Zai Lab shall share certain costs estimated at approximately $ 8.1 million associated with supply chain activities for manufacturing XACDURO ® .

Such amounts recorded for the three and six months ended June 30, 2024 and 2023 were not material.

SUL-DUR was approved by China’s National Medical Products Administration in May 2024, and we recognized $ 8.0 million in license revenue for the three and six months ended June 30, 2024 under this agreement.

This amount is included in “Accounts receivable” in our unaudited condensed consolidated balance sheet as of June 30, 2024.

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.

On April 24, 2024, we entered into an amendment to the Zai Agreement (the “Amended Zai Agreement”), pursuant to which Zai Lab shall share costs associated with certain new manufacturing and technology transfer activities for XACDURO ® (the “Services”), which were not contemplated under the Zai Agreement and are crucial for regulatory approval in the Asia-Pacific region.

We determined that the Amended Zai Agreement falls within the scope of ASC 606 and Zai Lab is a customer in this arrangement as the Services are an output of our ordinary activities.

We have determined that the Services represent the only performance obligation and are distinct from the performance obligations under the original Zai Agreement.

In addition, the costs we incur in performing the Services most accurately depict the transfer of value to Zai Lab and maximize the use of observable inputs for measuring progress, therefore, we recognize revenue from this arrangement as the costs related to Services are incurred.

We recognized $ 6.5 million in license revenue for the three and six months ended June 30, 2024, under the Amended Zai Agreement.

This amount is included in “Accounts receivable” in our unaudited condensed consolidated balance sheet as of June 30, 2024.

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, 2024 and 2023 were not material.

Relevant amounts for the three and six months ended June 30, 2024 and 2023 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.

9 unchanged sentences

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, 2024.

Royalty revenue recognized under this agreement for the three months ended March 31, 2024 and 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, 2024.

Royalty revenue recognized under this agreement for the three and six months ended June 30, 2024 and 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.

The PAION supply agreement will automatically renew until the earlier of July 13, 2027, or until a new supply agreement is executed.

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

We did no t recognize any cost reimbursements under this agreement for the three months ended March 31, 2024 and 2023.

The PAION supply agreement automatically renewed and will expire until the earlier of July 13, 2027, or until a new supply agreement is executed.

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

We did no t recognize any cost reimbursements under this agreement for the three and six months ended June 30, 2024 and 2023.

PAION filed for insolvency in Germany on October 27, 2023 and the insolvency proceedings commenced on January 1, 2024.

3 unchanged sentences

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”).

Under the Everest License, we recognized $ 8.0 million in license revenue for the three months ended March 31, 2023 as a result of our achievement of a regulatory milestone during the period.

Under the Everest License, we recognized $ 8.0 million in license revenue for the six months ended June 30, 2023 as a result of our 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.

4 unchanged sentences

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

Royalty revenue recognized for the three months ended March 31, 2024 and 2023 was not material.

Royalty revenue recognized for the three and six months ended June 30, 2024 was $ 1.2 million and $ 1.8 million, respectively.

Royalty revenue recognized 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 ® and will transfer to Everest certain XERAVA ® -related manufacturing know-how.

Under the Everest Supply Agreement, we are reimbursed for direct and certain indirect manufacturing costs at 110 % of cost.

R evenue recognized under this agreement for the three months ended March 31, 2024 and 2023 was not material.

R evenue recognized under this agreement for the three and six months ended June 30, 2024 was $ 0.8 million and $ 1.7 million, respectively.

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

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, 2024 and 2023 were not material.

Amounts recognized under this agreement for the three and six months ended June 30, 2024 were $ 0.7 million and $ 1.4 million, respectively.

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 ® .

Amounts recognized under this agreement for the three months ended March 31, 2024 were not material.

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.

Amounts recognized under this agreement for the three and six months ended June 30, 2024 were $ 0.5 million and $ 1.2 million, respectively.

F or 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.

1 unchanged sentence

(“Paratek”) License, Paratek non-exclusively licensed to La Jolla certain intellectual property rights relating to XERAVA ® , including non-exclusive rights to certain issued patents and patent applications covering XERAVA ® .

We are obligated to pay Paratek a 2.25 % royalty based on direct U.S.

We were obligated to pay Paratek a 2.25 % royalty based on direct U.S.

net sales of XERAVA ® .

Our obligation to pay royalties with respect to the licensed product was retroactive to the date of the first commercial sale of XERAVA ® and continued until there were no longer any valid claims of the Paratek patents, which expired 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.

Business Transfer and Subscription Agreement with AstraZeneca

2 unchanged sentences

We are also obligated to pay AstraZeneca a one-time milestone payment of $ 10.0 million within two years of achieving the first commercial sale of zoliflodacin.

Additionally, we are obligated to pay AstraZeneca tiered, single-digit royalties on the annual worldwide net sales of durlobactam and, the lesser of tiered, single-digit royalties on the worldwide annual net sales of zoliflodacin and a specified share of the royalties we receive from sublicensees of zoliflodacin.

Additionally, we are obligated to pay AstraZeneca tiered, single-digit royalties on the annual worldwide net product sales of durlobactam and, the lesser of tiered, single-digit royalties on the worldwide annual net sales of zoliflodacin and a specified share of the royalties we receive from sublicensees of zoliflodacin.

Royalties on sales of zoliflodacin do not include sales by GARDP in low-income and specified middle-income countries as discussed above.

Our obligation to make these royalty payments expires with respect to each product on a country-by-country basis upon the later of (i) the 10-year anniversary of the first commercial sale of a product in each such country or (ii) when the last patent right covering a product expires in each such country.

The royalty expense in respect of durlobactam arising from our net sales of XACDURO ® for the three months ended March 31, 2024 was not material.

The royalty expense in respect of durlobactam arising from our net product sales of XACDURO ® for the three and six months ended June 30, 2024 was not material.

Consolidated Entity

15 unchanged sentences

We report in our condensed consolidated statements of income and comprehensive income any investment gains and losses by the Partnership as part of “Changes in fair value of equity and long-term investments, net”, any interest and dividend income as part of “Interest and dividend income” and any investment expenses as part of “Other expense, net”.

As of March 31, 2024, we continued to hold approximately 100 % of the economic interest of the Partnership.

As of March 31, 2024 and December 31, 2023, total assets of the Part nership were $ 287.2 million and $ 311.8 million, respectively, of which the majority was attributable to equity and long-term investments.

As of March 31, 2024 and December 31, 2023 , total liabilities were $ 1.8 million and $ 0.1 million, respectively.

As of June 30, 2024, we continued to hold approximately 100 % of the economic interest of the Partnership.

As of June 30, 2024 and December 31, 2023, total assets of the Part nership were $ 270.0 million and $ 311.8 million, respectively, of which the majority was attributable to equity and long-term investments.

As of June 30, 2024 and December 31, 2023 , total liabilities were $ 0.6 million and $ 0.1 million, respectively.

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

During the three months ended March 31, 2024 , we recorded $ 0.2 million of net investment-related expense incurred by the Partnership and $ 26.2 million of net negative changes in fair values of equity and long-term investments in the unaudited condensed consolidated statements of income and comprehensive income.

During the three months ended March 31, 2023, we recorded $ 0.5 million of net investment-related expenses incurred by the Partnership and $ 4.1 million of net negative changes in fair values of equity and long-term investments in the unaudited condensed consolidated statements of income and comprehensive income.

During the three and six months ended June 30, 2024 , we recorded $ 0.1 million and $ 0.3 million, respectively, of net investment-related expense incurred by the Partnership and $ 15.8 million and $ 42.0 million, respectively, of net negative changes in fair values of equity and long-term investments in the unaudited condensed consolidated statements of income and comprehensive 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 and comprehensive income.

Equity and Other Investments and Fair Value Measurements

14 unchanged sentences

On July 10, 2023, Armata entered into an amendment to the amended and restated investor rights agreement with the Company and ISO, pursuant to which the Company and ISO agreed that the voting agreement will expire on the earlier of the fifth anniversary of the original agreement's effective date, January 26, 2021, or the approval by the FDA of any of Armata’s product candidates for marketing and commercial distribution.

As of March 31, 2024 , three of the seven members of Armata’s board of directors are also members of the board of directors of Innoviva.

As of March 31, 2024 and December 31, 2023, the Company and ISO owned approximately 69.4 % , of Armata’s common stock.

As of June 30, 2024 , 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, 2024 and December 31, 2023, 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.

23 unchanged sentences

We account for the Armata July 2023 Term Loan and the Armata March 2024 Term Loan as trading securities, measured at fair value using income approach based on the discounted value of expected future cash flows.

As of March 31, 2024, the fair values of our holdings of Armata common stock, warrants, the Armata Convertible Note, the Armata July 2023 Term Loan and the Armata March 2024 Term Loan were estimated at $ 104.8 million, $ 47.1 million, $ 64.3 million, $ 27.4 million, and $ 35.5 million, respectively.

As of June 30, 2024, the fair values of our holdings of Armata common stock, warrants, the Armata Convertible Note, the Armata July 2023 Term Loan and the Armata March 2024 Term Loan were estimated at $ 69.0 million, $ 22.8 million, $ 47.7 million, $ 28.0 million, and $ 36.4 million, respectively.

As of December 31, 2023, the fair values of our holdings of Armata common stock, warrants, the Armata Convertible Note and the Armata July 2023 Term Loan were estimated at $ 81.2 million, $ 35.3 million, $ 51.9 million and $ 27.0 million , respectively.

For the Armata common stock and warrants, we recorded $ 35.3 million and $ 15.8 million in unrealized gain for the three months ended March 31, 2024 and 2023, respectively, as changes in fair values of equity method i nvestments, net, in the unaudited condensed consolidated statements of income and comprehensive income.

For the Armata Convertible Note, we recorded $ 12.4 million and $ 2.8 million unrealized gain as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income for three months ended March 31, 2024 and 2023, respectively.

For the July 2023 Armata Term Loan, we recorded $ 0.4 million unrealized gain as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income for three months ended March 31, 2024 .

For the March 2024 Armata Term Loan, we recorded $ 0.5 million unrealized gain as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income for three months ended March 31, 2024.

For the Armata common stock and warrants, we recorded $ 60.1 million and $ 24.8 million in unrealized loss for the three and six months ended June 30, 2024, respectively, and $ 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 investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.

For the Armata Convertible Note, we recorded $ 16.6 million and $ 4.2 million in unrealized loss for the three and six months ended June 30, 2024 , respectively, and $ 1.7 million unrealized loss and $ 1.1 million unrealized gain for the three and six months ended June 30, 2023, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statement of income and comprehensive income.

For the July 2023 Armata Term Loan, we recorded $ 0.6 million and $ 1.0 million in unrealized gain for three and six months ended June 30, 2024, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.

For the March 2024 Armata Term Loan, we recorded $ 0.9 million and $ 1.4 million for the three and six months ended June 30, 2024, respectively, in unrealized gain as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.

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)

7 unchanged sentences

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

As of March 31, 2024 , none of InCarda’s six board members was designated by ITH.

As of June 30, 2024 , none 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 three months ended March 31, 2023.

12 unchanged sentences

The InCarda Convertible Note is secured by certain intellectual property rights of InCarda.

As of March 31, 2024 and December 31, 2023 , we held 8.1 % of InCarda equity ownership.

As of June 30, 2024 and December 31, 2023 , we held 9.1 % and 8.1 %, respectively, of InCarda equity ownership.

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

4 unchanged sentences

Under the measurement alternative, the equity investment is initially recorded at its allocated cost, but the carrying value may be adjusted through earnings upon an impairment or when there is an observable price change involving the same or a similar investment with the same issuer.

Due to InCarda’s equity recapitalization in the second quarter of 2022, TRC reassessed the value of its investments in InCarda using the Option Pricing Model Backsolve valuation methodology.

Key assumptions used in the valuation model included an expected holding period of two years , a risk-free interest rate of 3.2 %, a dividend yield of 0.0 % and an estimated volatility of 122.0 %.

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 $ 9.0 million during the second quarter of 2022.

We account for the InCarda Convertible Note as a trading security, measured at fair value.

As of March 31, 2024 and December 31, 2023 , we recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets $ 4.8 million in fair value of InCarda’s Series C preferred stock and $ 0.1 million in fair value of the InCarda Series D Warrants.

As of March 31, 2024 and December 31, 2023 , we recognized as equity and long-term investments in the unaudited condensed consolidated balance sheets $ 2.7 million, for InCarda’s Series D-1 preferred stock, Series D-2 preferred stock, and common stock using the measurement alternative.

As of March 31, 2024, we recorded $ 0.4 million in fair value of the InCarda Convertible Note as equity and long-term investments in the unaudited condensed consolidated balance sheet.

During the three months ended March 31, 2024 , there was immaterial change in the carrying amount of our investments.

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

As of June 30, 2024 and December 31, 2023 , we recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets $ 4.8 million in carrying amount of InCarda’s Series C preferred stock and $ 0.1 million in fair value of the InCarda Series D Warrants.

As of June 30, 2024 and December 31, 2023 , we recognized as equity and long-term investments in the unaudited condensed consolidated balance sheets $ 2.7 million, for InCarda’s Series D-1 preferred stock, Series D-2 preferred stock, and common stock using the measurement alternative.

As of June 30, 2024 , we recorded $ 0.4 million in fair value of the InCarda Convertible Note as equity and long-term investments in the unaudited condensed consolidated balance sheet.

During the three and six months ended June 30, 2024, there was immaterial changes in the carrying amount of our investments.

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

Equity Investment in ImaginAb

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The ImaginAb Convertible Note is subordinate to certain existing indebtedness of ImaginAb as defined in the ImaginAb Convertible Note.

As of March 31, 2024 , one of ImaginAb’s six board members was designated by ITH.

As of March 31, 2024 and December 31, 2023, we held 11.8 % and 12.4 %, respectively, of ImaginAb equity ownership.

As of June 30, 2024 , one of ImaginAb’s six board members was designated by ITH.

As of June 30, 2024 and December 31, 2023, we held 11.8 % and 12.4 %, 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.

4 unchanged sentences

We account for the ImaginAb 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, 2024 and December 31, 2023, our investment in ImaginAb’s Series C preferred stock, Series C-2 preferred stock and common stock amounted to $ 7.6 million and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets.

As of March 31, 2024, we recorded $ 2.9 million in fair value of the ImaginAb Convertible Note as equity and long-term investments in the unaudited condensed consolidated balance sheet.

During the three months ended March 31, 2024, we recorded $ 0.2 million in net unrealized loss on the ImaginAb Convertible Note as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated statements of income and comprehensive income.

As of June 30, 2024 and December 31, 2023, our investment in ImaginAb’s Series C preferred stock, Series C-2 preferred stock and common stock amounted to $ 7.6 million and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets.

As of June 30, 2024 , we recorded $ 3.0 million in fair value of the ImaginAb Convertible Note as equity and long-term investments in the unaudited condensed consolidated balance sheet.

During the three and six months ended June 30, 2024, we recorded $ 0.1 million and $ 0.3 million, respectively, in net unrealized gain on the ImaginAb Convertible Note as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated statements of income and comprehensive income.

There was no change in the carrying amount of our equity investments in ImaginAb.

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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, 2024 and December 31, 2023, the fair value of the Gate Convertible Note was estimated at $ 33.2 million and $ 28.0 million, respectively, and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets.

We rec orded $ 0.6 million and $ 0.7 million unrealized loss as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated state ments of income and comprehensive income for the three months ended March 31, 2024 and 2023, respectively.

As of June 30, 2024 and December 31, 2023, the fair value of the Gate Convertible Note was estimated at $ 33.5 million and $ 28.0 million, respectively, and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets.

We rec orded $ 0.3 million unrealized gain and $ 0.3 million unrealized loss for the three and six months ended June 30, 2024, respectively, as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated statements of income and comprehensive income.

We recorded $ 0.6 million in unrealized gain and a minimal amount in unrealized loss 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, 2023, respectively.

Equity Investment in Nanolive

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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 March 31, 2024 , no Innoviva designee is serving on Nanolive’s seven -member board.

As of March 31, 2024 and December 31, 2023, we held 15.3 % of Nanolive equity ownership.

As of June 30, 2024 , no Innoviva designee is serving on Nanolive’s six -member board.

As of June 30, 2024 and December 31, 2023, we held 15.3 % 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, 2024 and December 31, 2023, $ 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 carrying amount of our investment.

As of June 30, 2024 and December 31, 2023, $ 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 carrying amount of our investment.

Available-for-Sale Securities

1 unchanged sentence

Available-for-sale securities are summarized below:

March 31, 2024

June 30, 2024

(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, 2024 and December 31, 2023, all investments were money market funds, and there was no credit loss recognized.

As of June 30, 2024 and December 31, 2023, all available-for-sale 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, 2024 Using:

Estimated Fair Value Measurements as of June 30, 2024 Using:

Types of Instruments

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Total liabilities measured at estimated fair value

(1) The investments held by ISP Fund LP consisted of $ 225.7 million in equity investments, which included private placement positions of $ 61.6 million, and $ 61.4 million in money market funds, cash and interest receivable.

(1) The investments held by ISP Fund LP consisted of $ 231.4 million in equity investments, which included private placement positions of $ 61.6 million and $ 38.6 million in money market funds and cash.

A certain portion of the total capital contribution of $ 300.0 million is no longer subject to a 36-month lock-up period from the date of such capital contribution.

27 unchanged sentences

The carrying amount of goodwill

as of March 31, 2024 and December 31, 2023 was $ 17.9 million .

as of June 30, 2024 and December 31, 2023 was $ 17.9 million .

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, 2024 and December 31, 2023 were as follows:

March 31, 2024

The carrying basis and accumulated amortization of recognized intangible assets as of June 30, 2024 and December 31, 2023 were as follows:

June 30, 2024

(In thousands)

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

We recognized amortization expense of $ 6.4 million and $ 3.8 million for the three months ended March 31, 2024 and 2023, respectively.

We recognized amortization expense of $ 6.4 million and $ 12.9 million for the three and six months ended June 30, 2024 , respectively.

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 $ 12.9 million for the remainder of 2024, $ 25.8 million for each of the years from 2025 to 2028 and $ 98.7 million thereafter.

6 unchanged sentences

Total inventory

As of March 31, 2024 and December 31, 2023 , total inventory included net fair value adjustments resulting from the acquisition of La Jolla of approximately $ 16.1 million and $ 23.0 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 $ 6.8 million for the three months ended March 31, 2024 and 2023.

As of June 30, 2024 and December 31, 2023 , total inventory included net fair value adjustments resulting from the acquisition of La Jolla of approximately $ 12.7 million and $ 23.0 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 $ 3.5 million and $ 10.3 million, respectively, for the three and six months ended June 30, 2024 .

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

5 unchanged sentences

Current portion of lease liabilities

Current portion of deferred royalty obligations

Royalty obligation payable

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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)

3 unchanged sentences

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

1 unchanged sentence

3.50 % - 3.76 %

4.1 % - 4.6 %

3.50 % - 4.0 %

Expected term (in years)

5 unchanged sentences

$ 5.22 - $ 5.64

$ 4.97 - $ 6.93

$ 5.22 - $ 5.64

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 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.

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

The repurchase program authorized 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 permitted 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, 2024 , we have repurchased 634,107 shares in the open market at an average price of $ 15.24 per share for a total amount of approximately $ 9.7 million.

All the repurchased shares were retired.

Subsequent to March 31, 2024 and through April 25, 2024, we completed the program by repurchasing 352,821 shares in the open market at an average price of $ 14.91 per share for a total amount of approximately $ 5.3 million.

The share repurchase program was completed in April 2024.

From January to April 2024, we repurchased 986,928 shares in the open market at an average price of $ 15.12 per share for a total amount of approximately $ 14.9 million.

All repurchased shares were retired.

In April 2024, we retired all the shares held in treasury resulting from our strategic buyback of GSK’s common shares in the Company in 2021.

We recorded the corresponding cost of treasury stock of $ 393.8 million in additional paid-in capital.

Our debt consists of the following:

4 unchanged sentences

In January 2013, we completed an underwritten public offering of $ 287.5 million aggregate principal amount of our 2023 Notes, which matured on January 15, 2023.

The remaining balance of $ 96.2 million was fully paid upon the maturity date.

The remaining balance of the 2023 Notes of $ 96.2 million was fully paid upon the maturity date.

Convertible Senior Notes Due 2025

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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, 2024 and 2023:

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, 2024 and 2023:

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 for the three months ended March 31, 2024 and 2023:

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, 2024 and 2023:

Three months ended June 30,

Six months ended June 30,

(In thousands)

3 unchanged sentences

Debt Maturities

The aggregate scheduled maturities of our convertible debt as of March 31, 2024 were as follows:

The aggregate scheduled maturities of our convertible debt as of June 30, 2024 were as follows:

(In thousands)

March 31, 2024

June 30, 2024

Years ending December 31:

7 unchanged sentences

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, 2024 and 2023 , we recognized interest expense of $ 2.7 million and $ 1.2 million, respectively.

The carrying value of the deferred royalty obligation as of March 31, 2024 and December 31, 2023 was $ 70.1 million and $ 69.9 million, respectively (refer to Note 8 “Balance Sheet Components”) .

During the three months ended March 31, 2024 , we made royalty payments to HCR of $ 1.9 million.

The deferred royalty obligation was valued using Level 3 inputs, and its carrying value as of March 31, 2024 approximates fair value.

For the three and six months ended June 30, 2024, we recognized interest expense of $ 2.7 million and $ 5.5 million, respectively.

The carrying value of the deferred royalty obligation as of June 30, 2024 and December 31, 2023 was $ 70.5 million and $ 69.9 million, respectively (refer to Note 8 “Balance Sheet Components”) .

During the six months ended June 30, 2024 , we made royalty payments to HCR of $ 4.1 million.

The deferred royalty obligation was valued using Level 3 inputs, and its carrying value as of June 30, 2024 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 ® .

1 unchanged sentence

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, 2024 , inclusive of the aggregate royalties paid to HCR by La Jolla under the La Jolla Royalty Agreement prior to our acquisition, La Jolla paid $ 20.0 million of aggregate royalties to HCR.

As of June 30, 2024 , inclusive of the aggregate royalties paid to HCR by La Jolla under the La Jolla Royalty Agreement prior to our acquisition, La Jolla paid $ 22.1 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.

2 unchanged sentences

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, 2024 and December 31, 2023.

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, 2024 and December 31, 2023.

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)

3 unchanged sentences

Supplemental cash flow information related to leases are as follows:

Three months ended March 31,

Six Months Ended June 30,

(In thousands)

Cash paid for amounts included in the measurement of operating lease liabilities

As of March 31, 2024, our operating leases have weighted-average remainin g term of approximately 2.1 years and the weighted average discount rate on our operating lease liabilities was 7.5 %.

Future minimum payments on our operating leases as of March 31, 2024 were as follows:

Operating lease right-of-use asset obtained in exchange for operating lease obligations

As of June 30, 2024, our operating leases have weighted-average remainin g term of approximately 2.9 years and the weighted average discount rate on our operating lease liabilities was 7.2 %.

Future minimum payments on our operating leases as of June 30, 2024 were as follows:

(In thousands)

March 31, 2024

June 30, 2024

Years ending December 31:

3 unchanged sentences

Total operating lease liabilities

Purchase Commitments

In April 2024, we entered into a Commercial Supply Agreement with Corden Pharma CHENÔVE SAS (“Corden”), under which we engaged Corden to manufacture and supply certain products related to XACDURO ® and to perform certain services and studies.

Under the agreement, we committed to minimum purchase commitments through December 31, 2027.

As of June 30, 2024, we have approximately $ 9.7 million, $ 6.8 million, $ 7.6 million and $ 6.1 million in outstanding purchase commitments under the agreement for the remainder of 2024 and for the years 2025, 2026 and 2027, respectively.

Legal Proceedings

13 unchanged sentences

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

Fact discovery closed on March 31, 2024 and expert discovery will be complete by August 2, 2024.

Fact discovery closed on March 31, 2024 and expert discovery is expected to be complete by August 16, 2024.

A trial date has not yet been set in this matter.

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, 2024.

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 $ 8.6 million and $ 6.3 million f or the three months ended March 31, 2024 and 2023, respectively.

The Company’s effective income tax rate for the three months ended March 31, 2024 was 19.0 % compared to 15.3 % for the same period in 2023.

The income tax expense for the three months ended March 31, 2024 and 2023 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, 2024 was lower than the expense computed at the U.S.

federal statutory income tax rate due primarily to foreign-derived intangible income tax deduction and R&D credit, partially offset by non-deductible expenses and state income taxes.

Subsequent Event

On April 11, 2024, we entered into a Commercial Supply Agreement with Corden Pharma CHENÔVE SAS (“Corden”), under which we engaged Corden to manufacture and supply certain products related to XACDURO ® and to perform certain services and studies.

Under the agreement, we committed to minimum purchase commitments aggregating to approximately $ 30.0 million through December 31, 2027.

We recorded income tax benefit of $ 4.6 million f or the three months ended June 30, 2024 and income tax expense of $ 4.0 million for the six months ended June 30, 2024, compared to the income tax expense of $ 4.5 million and $ 10.8 million for the three and six months ended June 30, 2023.

The Company’s effective income tax rate for the six months ended June 30, 2024 was 68.4 % compared to 25.7 % for the same period in 2023.

The income tax expense for the six months ended June 30, 2024 and 2023 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, 2024 was higher than the expense computed at the U.S.

federal statutory income tax rate due primarily to valuation allowance against unrealized investment losses, state income taxes and nondeductible expenses, partially offset by foreign-derived intangible income tax deduction and research and development credits.

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