What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-11-06 compared with 2024-07-31 · 229 added, 160 removed, 824 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

September 30,

Current assets:

18 unchanged sentences

Deferred revenue

Convertible subordinated notes due 2025, net of issuance costs

Income tax payable

Other accrued liabilities

12 unchanged sentences

62,601 and 63,307 issued and outstanding as of

June 30, 2024 and December 31, 2023, respectively

September 30, 2024 and December 31, 2023, respectively

Treasury stock:

at cost, nil and 32,005 shares as of

June 30, 2024 and December 31, 2023, respectively

September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

7 unchanged sentences

(In thousands, except per share data)

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, 2024

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

June 30, 2024 and 2023

Three Months Ended September 30,

Nine Months Ended September 30,

Royalty revenue, net of amortization

of capitalized fees paid of $ 3,456 in the

three months ended September 30, 2024

and 2023, and $ 10,368 in the nine months

ended September 30, 2024 and 2023

Net product sales

17 unchanged sentences

Total expenses, net

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:

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:

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Treasury Stock

18 unchanged sentences

Balance as of June 30, 2024

Six Months Ended June 30, 2023

Exercise of stock options and

issuance of common stock units

and stock awards, net of

repurchase of shares to satisfy

tax withholding

Stock-based compensation

Balance as of September 30, 2024

Nine Months Ended September 30, 2023

Treasury Stock

13 unchanged sentences

Balance as of June 30, 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 September 30, 2023

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

38 unchanged sentences

Cash and cash equivalents at end of period

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental Disclosure of Cash Flow Information:

Cash paid for interest

Cash paid for income taxes

Supplemental Disclosure of Non-cash Investing and Financing Activities:

52 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 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.

Three of our customers each account for 27 %, 21 % and 20 %, respectively, of our net product sales for the three months ended September 30, 2024 , and 31 %, 23 % and 23 %, respectively, for the nine months ended September 30, 2024 .

These same customers account for 32 %, 15 % and 12 %, respectively, of our receivables from net product sales, which are included in “Accounts receivable” in our unaudited condensed consolidated balance sheet as of September 30, 2024 .

Three of our customers each account for 27 %, 28 % and 26 %, respectively, of our net product sales for the three months ended September 30, 2023, and 32 %, 28 % and 27 %, respectively, for the nine months ended September 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.

17 unchanged sentences

Accounts Receivable

Accounts receivables are recorded net of estimates for prompt-pay discounts, chargebacks, returns and rebates.

Accounts receivable are recorded net of estimates for prompt-pay discounts, chargebacks, returns and rebates.

Allowances for prompt-pay discounts and chargebacks are based on contractual terms.

26 unchanged sentences

These investments are classified as long-term investments in the unaudited condensed consolidated balance sheets.

In October 2024, Strategic Partners made an election to unwind its capital accounts in the Partnership in accordance with the terms of the Partnership Agreement.

Revenue Recognition

28 unchanged sentences

These discounts are recorded as a reduction of revenue on delivery to our customers.

We offer customers a limited right of return, generally for damaged or expired product.

We offer customers a limited right of return, generally for damaged or expired products.

We estimate returns based on an internal analysis, which includes actual experience.

1 unchanged sentence

We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services.

Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the quarter in which product was sold.

Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the quarter in which the product was sold.

Additionally, we may offer customer incentives and consideration in the form of volume-based or other rebates.

19 unchanged sentences

Related Party

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

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

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

9 unchanged sentences

The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024.

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

The Company is assessing the impact this adoption will have on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) .

2 unchanged sentences

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

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.

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.

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.

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,

If in a net loss position, 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 per share for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands except per share data)

Net income (loss), basic

Net income, basic

interest expense on 2023 Notes, net of tax effect

1 unchanged sentence

interest expense on 2028 Notes, net of tax effect

Net income (loss), diluted

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

Net income, diluted

Weighted-average shares used to compute basic net income

Dilutive effect of 2023 Notes

3 unchanged sentences

incentive plan and employee stock purchase plan

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

Net income (loss) per share

Dilutive effect of outstanding warrant

Weighted-average shares used to compute diluted net income

Net income per share

Anti-Dilutive Securities

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,

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 September 30,

Nine Months Ended September 30,

(In thousands)

7 unchanged sentences

Net revenue recognized under our GSK Agreements was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

4 unchanged sentences

Net Product Sales

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.

Our net product sales were $ 27.8 million, consisting of net sales of GIAPREZA ® , XERAVA ® , and XACDURO ® for $ 13.8 million, $ 4.2 million and $ 9.8 million, respectively, for the three months ended September 30, 2024 .

Our net product sales were $ 68.6 million, consisting of net sales of GIAPREZA ® , XERAVA ® , and XACDURO ® for $ 39.0 million, $ 15.2 million and $ 14.4 million, respectively, for the nine months ended September 30, 2024 .

We derived approximately 71 % and 82 % of our net product sales from customers located in the U.S.

for the three and nine months ended September 30, 2024, respectively.

Our net product sales were $ 13.7 million, consisting of net sales of GIAPREZA ® , XERAVA ® , and XACDURO ® for $ 8.0 million, $ 5.1 million, and $ 0.6 million, respectively, for the three months ended September 30, 2023.

Our net product sales were $ 40.9 million, consisting of net sales of GIAPREZA ® , XERAVA ® , and XACDURO ® for $ 28.2 million, $ 12.1 million, and $ 0.6 million, respectively, for the nine months ended September 30, 2023.

We derived over 86 % and 93 % of our net product sales from customers located in the U.S.

for the three and nine months ended September 30, 2023, respectively.

License Revenue

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

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

License and Collaboration Arrangements

6 unchanged sentences

Zai Lab is also solely responsible for commercializing licensed products in the Asia-Pacific region and will commercialize licensed products for which it has obtained regulatory approval.

We are obligated to supply Zai Lab with the licensed products for clinical development and, if the licensed product is approved, for commercial use for a certain period unless Zai Lab notifies otherwise.

We are obligated to supply Zai Lab with the licensed products for clinical development and for commercial use for a certain period unless Zai Lab notifies otherwise.

Zai Lab may take over manufacturing responsibilities for its own commercialization activities within a specified time period following the effective date of the Zai Agreement.

2 unchanged sentences

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 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.

Such amounts recorded for the three and nine months ended September 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 nine months ended September 30, 2024 under this agreement.

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

In April 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.

1 unchanged sentence

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.

We recognized $ 0.8 million and $ 7.3 million in license revenue for the three and nine months ended September 30, 2024, respectively, under the Amended Zai Agreement.

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

In June 2024, we entered into an interim supply agreement with Zai Lab, under which Zai Lab shall purchase XACDURO ® inventory (the “Supplied Inventory”) for their commercial launch.

We have determined that this agreement falls within the scope of ASC 606.

Zai Lab is a customer and the Supplied Inventory is an output of our ordinary activities.

We have also determined that the Supplied Inventory represents the only performance obligation and is distinct from the performance obligations under the Zai agreements discussed above.

Furthermore, we evaluated that the performance obligation is satisfied over time and that a cost-to-cost measure of progress would be the measure of progress that most accurately depicts the transfer of value to Zai Lab and maximizes the use of observable inputs to measure progress.

We recognized $ 5.5 million in net product sales for the Supplied Inventory for the three and nine months ended September 30, 2024, respectively.

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

We also entered into a manufacturing stage transfer agreement with Zai Lab in June 2024, which was amended in September 2024 (the “Zai Manufacturing Stage Transfer Agreement”).

Pursuant to this agreement, Entasis shall provide assistance to Zai Lab for building out Zai Lab's manufacturing site for XACDURO ® and be compensated for Entasis' services and associated costs.

We have determined this agreement falls within the scope of ASC 606.

Zai Lab is a customer and the transfer service is an output of our ordinary activities and represents our only performance obligation, which is distinct from the performance obligations under the Zai agreements.

Furthermore, we have evaluated that the performance obligation is satisfied over time and that the costs we incur in performing the transfer service most accurately depicts the transfer of value to Zai Lab and maximizes the use of observable inputs for measuring progress, therefore, we recognize revenue from this arrangement as the services are provided and the costs are incurred.

We recognized $ 3.4 million in license revenue for the three and nine months ended September 30, 2024, respectively, under the Zai Manufacturing Stage Transfer Agreement.

This amount is included in “Accounts receivable” in our unaudited condensed consolidated balance sheet as of September 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”).

Under the terms of the GARDP Collaboration Agreement, GARDP will use commercially reasonable endeavors to perform and fully fund the Phase 3 registrational trial, including the manufacture and supply of the product candidate containing zoliflodacin, in uncomplicated gonorrhea.

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

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

We recorded immaterial reimbursements from GARDP under this agreement as reduction to research and development expense during the periods presented.

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 June 30, 2024.

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

Royalty revenue recognized under this agreement for the three and nine months ended September 30, 2024 was $ 1.2 million and $ 1.3 million, respectively.

Royalty revenue recognized under this agreement for the three and nine months ended September 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 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.

Cost reimbursements recognized under this agreement for the three and nine months ended September 30, 2024 were no t material.

We recognized $ 1.0 million in cost reimbursements under this agreement for the three and nine months ended September 30, 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 six months ended June 30, 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 nine months ended September 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 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.

Royalty revenue recognized for the three and nine months ended September 30, 2024 was $ 0.6 million and $ 2.3 million, respectively.

Royalty revenue recognized for the three and nine months ended September 30, 2023 was no t 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 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.

R evenue recognized under this agreement for the three and nine months ended September 30, 2024 was $ 0.9 million and $ 2.6 million, respectively.

Revenue recognized under this agreement for the three and nine months ended September 30, 2023 was $ 0.9 million and $ 1.6 million, respectively .

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 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.

Amounts recognized under this agreement for the three and nine months ended September 30, 2024 were $ 1.0 million and $ 2.5 million, respectively.

Amounts recognized under this agreement for the three and nine months ended September 30, 2023 were $ 0.5 million and $ 1.7 million, respectively.

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 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.

Amounts recognized under this agreement for the three and nine months ended September 30, 2024 were $ 0.3 million and $ 1.5 million, respectively.

For the nine months ended September 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 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 and six months ended June 30, 2023 were not material.

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

Business Transfer and Subscription Agreement with AstraZeneca

5 unchanged sentences

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 product sales of XACDURO ® for the three and six months ended June 30, 2024 was not material.

The royalty expense in respect of durlobactam arising from our net product sales of XACDURO ® for the three and nine months ended September 30, 2024 was no t material.

Consolidated Entity

6 unchanged sentences

Strategic Partners did not elect to make a withdrawal in 2023, thereby extending the lock-up period and withdrawal elections into subsequent years.

In October 2024, Strategic Partners made an election to unwind its capital accounts in the Partnership in accordance with the terms of the Partnership Agreement.

In May 2021, Strategic Partners received a distribution of $ 110.0 million from the Partnership to provide funding to Innoviva for a strategic repurchase of shares held by GSK.

On March 30, 2022, Strategic Partners made an additional capital contribution of $ 110.0 million to the Partnership pursuant to the letter agreement entered into between Strategic Partners, the Partnership and Sarissa Capital Fund GP LP on May 20, 2021.

The capital contribution is subject to a 36-month lock up period from the contribution date.

The capital contribution is subject to a 36-month lock up period from the contribution date, which will expire in March 2025.

We consolidate ISP Fund LP under the VIE model as we have determined that ISP Fund LP is a VIE and we are the primary beneficiary of the entity via our related party relationships with Sarissa Capital entities.

4 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 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.

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

As of September 30, 2024 and December 31, 2023, total assets of the Part nership were $ 252.4 million and $ 311.8 million, respectively, of which the majority was attributable to equity and long-term investments.

As of September 30, 2024 and December 31, 2023 , total liabilities were $ 0.8 million and $ 0.1 million, respectively.

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

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.

During the three and nine months ended September 30, 2024 , we recorded an immaterial amount and $ 0.3 million, respectively, of net investment-related expense incurred by the Partnership and $ 17.8 million and $ 59.8 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 nine months ended September 30, 2023, we recorded $ 1.1 million and $ 1.2 million, respectively, of net investment-related income earned by the Partnership, and $ 22.4 million and $ 22.7 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.

The following is a summary of individual investments held by ISP Fund at each balance sheet date:

September 30,

Common stock - Publicly traded healthcare companies

United States

United Kingdom

Total common stock

Preferred stock - Privately held healthcare companies

United States

Warrants - Privately held healthcare companies

Money market fund and cash

Total investments held by ISP Fund LP

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 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.

As of September 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 September 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 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 September 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 $ 59.4 million, $ 14.1 million, $ 45.5 million, $ 29.4 million, and $ 38.3 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 $ 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.

For the Armata common stock and warrants, we recorded $ 18.2 million and $ 43.0 million in unrealized loss for the three and nine months ended September 30, 2024, respectively, and $ 72.0 million and $ 67.9 million in unrealized gain for the three and nine months ended September 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 $ 2.2 million and $ 6.4 million in unrealized loss for the three and nine months ended September 30, 2024 , respectively, and $ 18.5 million and $ 19.6 million unrealized gain for the three and nine months ended September 30, 2023, 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 July 2023 Armata Term Loan, we recorded $ 1.4 million and $ 2.4 million in unrealized gain for three and nine months ended September 30, 2024, respectively, and $ 1.1 million unrealized gain for three and nine months ended September 30, 2023, 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 $ 2.0 million and $ 3.3 million for the three and nine months ended September 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 March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

(In thousands)

Loss from operations

Net income (loss)

Equity Investment in InCarda

5 unchanged sentences

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

As of June 30, 2024 , none of InCarda’s six board members was designated by ITH.

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

As of September 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.

5 unchanged sentences

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

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.

As of September 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 September 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 September 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 nine months ended September 30, 2024, there were immaterial changes in the carrying amount of our investments.

During the three months ended September 30, 2023, there was no change in the carrying amount of our investment.

During the nine months ended September 30, 2023, we recorded a $ 3.0 million net unrealized loss, as a change 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

10 unchanged sentences

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

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.

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

As of September 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 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.

As of September 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 September 30, 2024 , we recorded $ 3.1 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 nine months ended September 30, 2024, we recorded $ 0.1 million and $ 0.4 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.

20 unchanged sentences

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

On August 5, 2024, ITH entered into a Fourth Note Amendment Agreement with Gate to amend the Gate Convertible Note.

Pursuant to the Fourth Note Amendment Agreement, the principal amount of the Gate Convertible Note was increased from $ 33.5 million to $ 39.8 million, which represents the principal and accrued interest as of the fourth amendment date and an 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 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.

As of September 30, 2024 and December 31, 2023, the fair value of the Gate Convertible Note was estimated at $ 39.4 million and $ 28.0 million, respectively, and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets.

We rec orded $ 0.4 million and $ 0.7 million in unrealized loss for the three and nine months ended September 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 $ 0.1 million and $ 0.8 million 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 for the three and nine months ended September 30, 2023, respectively.

Equity Investment in Nanolive

5 unchanged sentences

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, 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.

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

As of September 30, 2024 and December 31, 2023, we held 13.4 % and 15.3 %, 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 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.

As of September 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.

Reconciliation of Equity and Long-Term Investments Balances

The following table reconciles the change in balances in “Equity and Long-Term Investments” as of each balance sheet date:

(In thousands)

Equity and long-term investments as of December 31, 2022

Purchases of trading securities

Purchases of equity and long-term investments

Changes in fair value, net

Equity and long-term investments as of December 31, 2023

Purchases of trading securities

Changes in fair value, net

Equity and long-term investments as of September 30, 2024

Available-for-Sale Securities

1 unchanged sentence

Available-for-sale securities are summarized below:

June 30, 2024

September 30, 2024

(In thousands)

5 unchanged sentences

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

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.

As of September 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 June 30, 2024 Using:

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

Types of Instruments

13 unchanged sentences

Total fair value of debt

Contingent value rights

Total liabilities measured at estimated fair value

(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.

However, we did no t elect to make a withdrawal in 2023, thereby extending the lock-up period and withdrawal elections into subsequent years.

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

12 unchanged sentences

Total liabilities at estimated fair value

(1) The investments held by ISP Fund LP consisted of $ 248.5 million in equity investments, which included private placement p ositions of $ 60.6 million, and $ 62.9 million in money market funds.

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.

However, we did no t elect to make a withdrawal in 2023, thereby extending the lock-up period and withdrawal elections into s ubsequent years.

There were no transfers between Level 1, Level 2 or Level 3 during the periods presented.

7 unchanged sentences

We recognized goodwill of $ 11.5 million and $ 6.4 million from our acquisitions of Entasis and La Jolla, respectively, in 2022.

The carrying amount of goodwill

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

The carrying amount of goodwill as of September 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 June 30, 2024 and December 31, 2023 were as follows:

June 30, 2024

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

September 30, 2024

(In thousands)

13 unchanged sentences

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

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.

We recognized amortization expense of $ 6.5 million and $ 19.4 million for the three and nine months ended September 30, 2024 , respectively.

We recognized amortization expense of $ 6.5 million and $ 15.3 million for the three and nine months ended September 30, 2023 , respectively.

Future amortization expense is expected to be $ 6.4 million for the remainder of 2024, $ 25.8 million for each of the years from 2025 to 2028 and $ 98.7 million thereafter.

1 unchanged sentence

Inventory consisted of the following:

September 30,

(in thousands)

3 unchanged sentences

Total inventory

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.

As of September 30, 2024 and December 31, 2023 , total inventory included net fair value adjustments resulting from the acquisition of La Jolla of approximately $ 10.9 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 $ 1.8 million and $ 12.1 million, respectively, for the three and nine months ended September 30, 2024 .

The fair value adjustments recorded as part of cost of products sold amounted to $ 5.4 million and $ 19.2 million for the three and nine months ended September 30, 2023, respectively.

Other Accrued Liabilities

Other accrued liabilities consisted of the following:

September 30,

(in thousands)

9 unchanged sentences

Other long-term liabilities consisted of the following:

September 30,

(in thousands)

6 unchanged sentences

The following table summarizes stock-based compensation expense:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Risk-free interest rate

2 unchanged sentences

3.50 % - 4.21 %

3.50 % - 4.0 %

Expected term (in years)

1 unchanged sentence

35.8 % - 36.8 %

37.3 % - 38.5 %

Dividend yield

3 unchanged sentences

$ 5.22 - $ 5.97

$ 5.22 - $ 5.64

Stockholders' Equity

9 unchanged sentences

Our debt consists of the following:

September 30,

(In thousands)

Unamortized debt discount and issuance costs

Total debt, net

Current portion of long-term debt, net

Total long-term debt, net

21 unchanged sentences

Our outstanding 2025 Notes balances consisted of the following:

September 30,

(In thousands)

1 unchanged sentence

Net carrying amount

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,

The following table sets forth total interest expense recognized related to the 2025 Notes for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

31 unchanged sentences

Our outstanding 2028 Notes balance consisted of the following:

September 30,

(In thousands)

1 unchanged sentence

Net carrying amount

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,

The following table sets forth total interest expense recognized related to the 2028 Notes for the three and nine months ended September 30, 2024 and 2023:

Three months ended September 30,

Nine months ended September 30,

(In thousands)

3 unchanged sentences

Debt Maturities

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

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

(In thousands)

June 30, 2024

September 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 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.

For the three and nine months ended September 30, 2024, we recognized interest expense of $ 2.6 million and $ 8.1 million, respectively.

The carrying value of the deferred royalty obligation as of September 30, 2024 and December 31, 2023 was $ 71.1 million and $ 69.9 million, respectively (refer to Note 8 “Balance Sheet Components”) .

During the nine months ended September 30, 2024 , we made royalty payments to HCR of $ 6.4 million.

The deferred royalty obligation was valued using Level 3 inputs, and its carrying value as of September 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 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.

As of September 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 $ 24.4 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.

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 June 30, 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 September 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.

Any material change in the fair value of the embedded derivatives will be recorded as either a gain or loss in the unaudited condensed consolidated statements of income.

Any material change in the fair value of the embedded derivatives will be recorded as either a gain or loss in the unaudited condensed consolidated statements of income and comprehensive income.

Commitments and Contingencies

2 unchanged sentences

The components of lease cost are as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(In thousands)

3 unchanged sentences

Supplemental cash flow information related to leases are as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

1 unchanged sentence

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:

As of September 30, 2024, 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 7.2 %.

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

(In thousands)

June 30, 2024

September 30, 2024

Years ending December 31:

6 unchanged sentences

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.

As of September 30, 2024, we have approximately $ 9.1 million, $ 7.1 million, $ 7.9 million and $ 6.3 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 is expected to be complete by August 16, 2024.

Fact discovery closed on March 31, 2024 and expert discovery was completed on August 19, 2024.

On September 13, 2024, La Jolla filed a motion for partial summary judgment of infringement regarding three claims from U.S.

10,548,943 and 10,335,451.

Briefing for this motion concluded on October 15, 2024.

The court has not yet rendered a decision on this motion.

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 June 30, 2024.

Given the current status 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 September 30, 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 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.

We recorded income tax expense of $ 5.6 million and $ 9.6 million for the three and nine months ended September 30, 2024, respectively, compared to the income tax expense of $ 3.9 million and $ 14.7 million for the three and nine months ended September 30, 2023, respectively.

The Company’s effective income tax rate for the nine months ended September 30, 2024 was 40.5 % compared to 10.6 % for the same period in 2023.

The income tax expense for the nine months ended September 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 nine months ended September 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.

Subsequent Event

On October 31, 2024, ITH and ImaginAb entered into a First Amendment to the ImaginAb Convertible Note.

Pursuant to this agreement, the principal amount of the ImaginAb Convertible Note was increased from $ 2.7 million to $ 4.8 million, which represents the principal, accrued interest and certain commitment fees as of the amendment date, and an additional cash investment of $ 1.5 million.

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

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