What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-26 compared with 2024-02-29 · 369 added, 267 removed, 1277 unchanged (33% of the section changed)

6 unchanged sentences

Notes to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm (PCAOB ID 34 )

Report of Independent Registered Public Accounting Firm (PCAOB ID 34 )

5 unchanged sentences

Accounts receivable

Receivables from collaboration arrangements

Receivable from collaboration arrangements

Prepaid expenses

Current portion of ISP Fund investments (Note 5)

Other current assets

6 unchanged sentences

Intangible assets

Deferred tax assets, net

Liabilities and Stockholders’ Equity

4 unchanged sentences

Deferred revenue

Convertible subordinated notes due 2023, net of issuance costs

Income tax payable

Convertible notes, due 2025, net of issuance costs

Other accrued liabilities

12 unchanged sentences

62,665 and 63,307 issued and outstanding as of

December 31, 2023 and December 31, 2022 respectively

December 31, 2024 and 2023 respectively

Treasury stock:

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

at cost, nil and, 32,005 shares as of December 31, 2024

and 2023, respectively

Additional paid-in capital

9 unchanged sentences

capitalized fees paid of $ 13,823 in

each of the years ended

December 31, 2023, 2022 and 2021

each of the years ended December 31,

2024, 2023 and 2022

Net product sales

License revenue

License and other revenue

Total revenue

48 unchanged sentences

Balance as of January 1, 2022

Distributions to noncontrolling interests

Equity activity of noncontrolling interests in

a consolidated variable interest entity

Exercise of stock options and issuance of

common stock units and stock awards, net of

repurchase of shares to satisfy tax withholding

Repurchase of common stock

Stock-based compensation

Balance as of December 31, 2021

Cumulative adjustment due to adoption of

21 unchanged sentences

tax withholding

Repurchase of common stock

Repurchase of common stock, including accrued

Stock-based compensation

Balance as of December 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, including accrued

Accrued excise tax on common stock repurchase

applied against tax liability

Stock-based compensation

Retirement of treasury stock

Balance as of December 31, 2024

See accompanying notes to consolidated financial statements.

27 unchanged sentences

Cash flows from investing activities

Acquisition of intangible asset

Purchases of equity method investments

4 unchanged sentences

Sales of equity investments managed by ISP Fund LP

Purchase and sales of other investments managed by ISP Fund LP, net

Purchases and sales of other investments managed by ISP Fund LP, net

Purchases of property and equipment

Sale of property and equipment

Proceeds from sale of ownership interest in TRC, net

1 unchanged sentence

Cash paid for the acquisition of La Jolla, net of cash acquired

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash flows from financing activities

24 unchanged sentences

Innoviva, Inc.

(and where context requires, together with its subsidiaries referred to as “Innoviva”, the “Company”, or “we” and other similar pronouns) is a company with a portfolio of royalties and innovative healthcare assets.

(and where context requires, together with its subsidiaries referred to as “Innoviva”, the “Company”, or “we” and other similar pronouns) is a company with a core royalties portfolio, a leading critical care and infectious disease platform known as Innoviva Specialty Therapeutics (“IST”), and a portfolio of strategic investments in other healthcare assets.

Our royalty portfolio contains respiratory assets partnered with Glaxo Group Limited (“GSK”), including RELVAR ® /BREO ® ELLIPTA ® (fluticasone furoate/vilanterol, “FF/VI”) and ANORO ® ELLIPTA ® (umeclidinium bromide/vilanterol, “UMEC/VI”), and up until July 2022, TRELEGY ® ELLIPTA ® (the combination FF/UMEC/VI).

6 unchanged sentences

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

Our new product, XACDURO ® (formerly known as sulbactam-durlobactam or SUL-DUR), was approved by the United States Food and Drug Administration (“FDA”) for the treatment of hospital-acquired and ventilator-associated pneumonias caused by Acinetobacter in adults on May 23, 2023.

We commenced commercial sales of XACDURO ® in the third quarter of 2023.

Our development pipeline includes zoliflodacin, an investigational treatment for uncomplicated gonorrhea that reported positive data in a pivotal Phase 3 clinical trial on November 1, 2023.

As such, we have a wholly owned robust critical care and infectious disease operating platform with a hospital focus anchored by three differentiated products with significant growth potential and a promising drug candidate.

On December 14, 2024, we entered into an exclusive distribution and license agreement with Basilea Pharmaceutica Ltd., (“Basilea”) for the commercialization of ZEVTERA ® (ceftobiprole), an advanced-generation cephalosporin antibiotic, in the U.S.

We continue to further advance our pipeline and are on track to submit a New Drug Application (“NDA”) for zoliflodacin, potentially first in class, single dose oral drug for the treatment of uncomplicated gonorrhea, to the FDA in early 2025.

Overall, we have a wholly owned robust critical care and infectious disease operating platform with a hospital focus anchored by four differentiated products with significant growth potential and a promising drug candidate.

In addition, we own other strategic healthcare assets, such as a large equity stake in Armata Pharmaceuticals, a leader in development of bacteriophages with potential use across a range of infectious and other serious diseases.

4 unchanged sentences

For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interest in our consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entity by the respective noncontrolling party.

Presentation Reclassification

Amounts in equity and long-term investments reported in the Company’ s comparative financial statements have been reclassified to conform to the current year presentation.

Certain reclassifications have been made to the consolidated statement of cash flows for the years ended December 31, 2022 and 2021 to conform to the current year’s presentation.

These reclassifications had no net effect on the net income or net cash flows from operating, investing and financing activities as previously reported.

Factors Affecting Comparability

Our historical financial condition and results of operations for the periods presented may not be comparable, either between periods or going forward due to the factors below and as discussed in Note 5, “Consolidated Entities and Acquisitions”.

• Adoption of Accounting Standards Update 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) effective January 1, 2022;

• Accounting consolidation of Entasis on February 17, 2022 and purchase of remaining noncontrolling interest in Entasis on July 11, 2022;

14 unchanged sentences

Although we deposit our cash with multiple financial institutions, our deposits, at times, may exceed federally insured limits.

We are dependent on third-party manufacturers to supply active pharmaceutical ingredients (“API”) and drug products for research and development and commercial programs.

We are dependent on third-party manufacturers to supply active pharmaceutical ingredients (“API”) and drug products for commercial and research and development programs.

These programs could be adversely affected by significant interruption in the supply of API or drug products.

5 unchanged sentences

Our royalty revenues under the GSK Agreements may not meet our, analysts’ or investors’ expectations, due to a number of important factors.

We started recognizing revenue from product sales of GIAPREZA ® and XERAVA ® in 2022 as a result of our acquisition of La Jolla.

In the current year, we also started recognizing revenue from product sales from XACDURO ® , which was commercially launched in the third quarter of 2023.

Our revenue for the periods include product sales of GIAPREZA ® , XERAVA ® and XACDURO ® .

Hospitals and other healthcare organizations generally purchase our products through a network of specialty distributors.

1 unchanged sentence

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

Three of our customers each account for approximately 31 %, 27 % and 27 %, respectively, of our net product sales for the year ended December 31, 2023 .

Three of our customers each account for approximately:

• 31 %, 24 % and 24 %, respectively, of our net product sales for the year ended December 31, 2024;

27 % and 27 %, respectively, of our net product sales for the year ended December 31, 2023;

• 33 %, 29 % and 28 %, respectively, of our net product sales for the year ended December 31, 2022.

These same customers account for 31 %, 18 % and 15 %, respectively, of our receivables from net product sales, which are included in “Accounts receivables, net” in our consolidated balance sheet as of December 31, 2024.

Three of our customers each account for approximately 33 %, 29 % and 28 %, respectively, of our net product sales from the time of our acquisition of La Jolla through December 31, 2022.

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

Segment Reporting

We operate in a single segment, which is to provide capital return to stockholders by maximizing the potential value of our portfolio of royalties and innovative healthcare assets.

Our Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer.

The CODM allocates resources and evaluates the performance of Innoviva at the consolidated level using information about our revenues, operating results and other key financial data as needed.

Our revenues are generated primarily from our collaborative arrangements and royalty payments from GSK, located in Great Britain.

We also generate revenue from net product sales of GIAPREZA ® , XERAVA ® , and XACDURO ® .

Refer to Note 3, “Revenue Recognition”, for more information on our revenues for the periods presented.

Our long-term assets are located within the United States.

Operating segments are identified as components of an enterprise about which separate discrete financial information is made available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance.

Refer to Note 15, “Segment Reporting”, for more segment information.

INNOVIVA, INC.

31 unchanged sentences

Property and Equipment

Property and equipment, which consisted of laboratory equipment, computer equipment, software, office furniture and fixtures, and leasehold improvements, were not material as of December 31, 2023 and 2022, respectively.

Property and equipment, which consist of laboratory equipment, computer equipment, software, office furniture and fixtures, and leasehold improvements, were not material as of December 31, 2024 and 2023, respectively.

Property and equipment are stated at cost less accumulated depreciation.

14 unchanged sentences

We also invest in ISP Fund LP, which investments consist of money market funds and equity and debt securities in the healthcare, pharmaceutical and biotechnology industries.

Pursuant to the Partnership Agreement entered in December 2020, we became a limited partner of this partnership, and our contributions are subject to a 36-month lock-up period, which restriction prevents us from having control and access to the contributions and related investments.

Pursuant to the Partnership Agreement entered in December 2020, we became a limited partner of this partnership, and our contributions were subject to a 36-month lock-up period, which restriction prevented us from having control over and access to the contributions and related investments.

The lock-up period for a certain portion of our contributions expired in December 2023.

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

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

These investments were classified as long-term investments in the consolidated balance sheet as of December 31, 2023.

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 and we expect to receive distributions of our capital accounts through April 2026.

Accordingly, a portion of these investments, which consist mainly of cash and money market funds that we expect to be distributed in the next 12 months, were classified as “Current portion of ISP Fund investments” in the consolidated balance sheet as of December 31, 2024.

Fair Value of Financial Instruments

We define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our valuation techniques are based on observable and unobservable inputs.

6 unchanged sentences

Level 3 —Unobservable inputs and little, if any, market activity for the assets.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial instruments include cash equivalents, accounts receivable, receivables from collaborative arrangements, accounts payable, and accrued liabilities, equity investments and convertible promissory notes.

11 unchanged sentences

Goodwill is recognized as the excess of the purchase consideration of an acquired entity over the fair value assigned to assets acquired and liabilities assumed in a business combination.

In addition to recognizing intangible assets acquired in a business combination, we capitalize milestone payments related to in-licensing agreements for approved products as an intangible asset when the contingency for the milestone is resolved and the consideration is issued or becomes issuable.

Goodwill and intangible assets with indefinite useful life are not amortized and are tested for impairment at least annually on the first day of December of each year or more frequently if indicators for potential impairment exist or whenever events or changes in circumstances indicate that the asset’s carrying asset amount may not be recoverable.

5 unchanged sentences

Lease expense is recognized on a straight-line basis over the expected lease term.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue Recognition

9 unchanged sentences

and (v) recognize revenue as a performance obligation is satisfied.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Royalty Revenue

25 unchanged sentences

We continue to assess our estimates of variable consideration as we accumulate additional historical data and will adjust these estimates accordingly.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

License Revenue

2 unchanged sentences

Similarly, we recognize regulatory approval milestone payments as revenues once the product is approved by the applicable regulatory agency.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For delivery of other goods or services related to a licensing arrangement, we determine whether the performance obligation is satisfied over time or at a point in time.

If the performance obligation is satisfied over time, we use judgment in determining the appropriate method of measuring progress for purposes of recognizing revenue.

We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Research and Development Expenses

22 unchanged sentences

Compensation expense for purchases under the ESPP is recognized based on the fair value of the common stock on the date of offering, less the purchase discount percentage provided for in the plan.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We utilize the asset and liability method of accounting for income taxes.

4 unchanged sentences

We continue to evaluate our deferred tax assets each reporting period to determine whether adjustments to our valuation allowance are required and deferred tax assets will be realized based on the consideration of all available positive and negative evidence, including the differences between our anticipated and actual future operating results, using a “more likely than not” standard.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities.

2 unchanged sentences

Related Parties

Transactions with GSK were considered related party transactions up until May 2021, when we completed the share repurchase agreement with GSK to buy back all of its shares of common stock in Innoviva.

GSK is no longer considered a related party after the completion of the share repurchase.

Transactions with GSK are described in Note 3, “Revenue Recognition and Collaborative Arrangements.”

Sarissa Capital ow ned 11.6 % of o ur outstanding common stock as of December 31, 2024 .

1 unchanged sentence

Sarissa Capital is considered to be a related party because two of its principals are members of our board of directors.

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative .

The amendment modifies the disclosure or presentation requirements for a variety of topics.

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective.

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

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280).

Recently Adopted Accounting Pronouncement

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures (Topic 280).

This ASU update requires enhanced segment disclosures, primarily related to significant segment expenses.

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.

We adopted ASU 2023-07 for the 2024 fiscal year and provided the enhanced disclosures for the comparative years.

The adoption of ASU 2023-07 did not have a material impact on the Company's financial statements.

Enhanced disclosures related to significant segment expenses are included in Note 15, “Segment Reporting.”

Recently Issued Accounting Pronouncements Not Yet Adopted

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

1 unchanged sentence

The ASU is effective on a prospective basis for annual 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 has not early adopted the ASU during 2024 and does not expect the adoption of the amendments to have a significant impact on its financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) , which requires disclosures about specific types of expenses included in the expense captions presented on the face of the statement of income as well as disclosures about selling expenses.

ASU 2024-03 is effective for the Company in annual reporting periods beginning after December 15, 2027, and interim reporting periods beginning after December 15, 2027.

We are currently evaluating the potential impact that ASU 2024-03 may have on our financial statement disclosures.

In November 2024, the FASB issued ASU 2024-04, Debt — Debt with Conversion and Other Options (Subtopic 470-20), which clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of convertible debt when changes are made to conversion features as part of an offer to settle the instrument.

ASU 2024-04 is effective for annual reporting periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods.

We are currently evaluating the potential impact that ASU 2024-04 may have on our financial statements and related disclosures.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NET INCOME PER SHARE

2 unchanged sentences

Dilutive potential common stock equivalents include the assumed exercise, vesting and issuance of employee stock awards using the treasury stock method, as well as common stock issuable upon assumed conversion of our convertible subordinated notes due 2023 (the “2023 Notes”) up until its maturity date on January 15, 2023, our convertible senior notes due 2025 (the “2025 Notes”), and our convertible senior notes due 2028 (the “2028 Notes”) using the if-converted method.

The 2025 Notes are convertible, based on the applicable conversion rate, into cash, shares of our common stock or a combination thereof, at our election.

Our current intent is to settle the principal amount of th e 2025 Notes in cash upon conversion.

The impact of the assumed conversion premium to diluted net income per share was historically computed using the treasury stock method until the adoption of ASU 2020-06.

As the average market price per share of our common stock as reported on The Nasdaq Global Select Market was lower than the initial conversion price of $ 17.26 per share, there was no dilutive effect of the assumed conversion premium for the year ended December 31, 2021.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

If the results attributable to Innoviva stockholders are in a net loss position, diluted net loss per share attributable to Innoviva stockholders is computed by dividing the net loss attributable to Innoviva stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutive common stock equivalents.

The following table shows the computation of basic and diluted net income per share for the years ended December 31, 2024, 2023 and 2022:

23 unchanged sentences

Outstanding stock warrant

Outstanding 2028 Notes

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

REVENUE RECOGNITION

3 unchanged sentences

We retained our royalty rights with respect to RELVAR ® /BREO ® ELLIPTA ® and ANORO ® ELLIPTA ® .

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net revenue recognized under our GSK Agreements was as follows:

18 unchanged sentences

Net Product Sales

Net product sales were $ 60.6 million, consisting of net sales of GIAPREZA ® , XERAVA ® , and XACDURO ® for $ 41.3 million, $ 17.3 million, and $ 2.0 million, respectively.

We derived approximately 91 % and 9 % of our net product sales for the same period from customers located in the U.S.

and the rest of the world, respectively.

From the date of acquisition of La Jolla to December 31, 2022, net product sales were $ 19.7 million, consisting of net sales of GIAPREZA ® and XERAVA ® for $ 14.2 million and $ 5.5 million, respectively.

We derived approximately 96 % and 4 % of our net product sales for the same period from customers located in the U.S.

and the rest of the world, respectively.

License Revenue

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

Total net product sales was as follows:

Year Ended December 31,

(In thousands)

Total net product sales

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We derived our net product sales:

• approximately 83 % from customers located in the U.S.

and 17 % from the rest of the world for the year ended December 31, 2024;

• approximately 91 % from customers located in the U.S.

and 9 % from the rest of the world for the year ended December 31, 2023;

• approximately 96 % from customers located in the U.S.

and 4 % from the rest of the world from the date of acquisition of La Jolla, which occurred on August 22, 2022, to December 31, 2022.

License and Other Revenue

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

LICENSE AND COLLABORATION ARRANGEMENTS

11 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 year ended December 31, 2023 and from the date of acquisition of Entasis to December 31, 2022 are not material.

Such amounts recorded for the years ended December 31, 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 year ended December 31, 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 year ended December 31, 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.

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 expenses 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 expenses related to Services are incurred.

We recognized $ 8.1 million in license and other revenue for the year ended December 31, 2024 under the Amended Zai Agreement, of which $ 1.6 million is included in “Accounts receivable” in our consolidated balance sheet as of December 31, 2024.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $ 6.3 million in net product sales for the Supplied Inventory for the year ended December 31, 2024, of which $ 0.6 million is included in “Accounts receivable” in our consolidated balance sheet as of December 31, 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 and other revenue for the year ended December 31, 2024 under the Zai Manufacturing Stage Transfer Agreement, of which $ 0.1 million is included in “Accounts receivable” in our consolidated balance sheet as of December 31, 2024.

In October 2024, we entered into a letter agreement pursuant to which Zai Lab will purchase regulatory starting material (“RSM”) supply for use in the production of XACDURO ® for up to $ 10.9 million.

We will supply the RSM while we continue to work on executing a commercial supply agreement with Zai Lab in accordance with the Zai Agreement.

Based on our assessments, this agreement does not modify any of our existing contracts with Zai Lab discussed above and should be accounted for separately.

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

However, this does not meet the definition of a contract with a customer since the contract does not identify each party’s rights regarding goods or services.

Accordingly, we deferred the consideration received amounting to $ 5.3 million as of December 31, 2024 in “Other accrued liabilities” until the execution of a commercial supply agreement, which will include all the required terms necessary for identifying each party’s rights regarding goods or services.

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 year ended December 31, 2023 and from the date of acquisition of Entasis to December 31, 2022 are 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.

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

PAION Pharma GmbH

Pursuant to the PAION AG and PAION Deutschland GmbH (together and individually “PAION”) License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA ® and XERAVA ® in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”).

4 unchanged sentences

We have not recognized any revenue from PAION related to commercial milestones from the date of acquisition of La Jolla to December 31, 2024.

Royalty revenue recognized under this agreement for the year ended December 31, 2023 and from the date of acquisition of La Jolla to December 31, 2022 are not material.

Royalty revenue recognized under this agreement for the year ended December 31, 2024 was $ 1.5 million .

Royalty revenue recognized under this agreement for the year ended December 31, 2023 and from the date of acquisition of La Jolla to December 31, 2022 was no t 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.

2 unchanged sentences

We recognized $ 1.3 million in cost reimbursements under this agreement for the year ended December 31, 2023.

Amounts recognized under this agreement from the date of acquisition of La Jolla to December 31, 2022 were not material.

PAION AG and PAION Deutschland GmbH filed for insolvency in Germany on October 27, 2023 and the insolvency proceedings were opened on January 1, 2024.

PAION announced on December 22, 2023 that it concluded negotiations with Humanwell Healthcare Group and entered into an agreement on the sale of the essential business operations of PAION AG and PAION Deutschland GmbH with the approval of the insolvency administrator in both procedures.

La Jolla did not oppose the sale and is in discussions with the acquirer regarding the continued business relationship.

Amounts recognized under this agreement for the year ended December 31, 2024 and from the date of acquisition of La Jolla to December 31, 2022 were not material.

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

PAION announced on December 22, 2023 that it concluded negotiations with Humanwell Healthcare Group and entered into an agreement on the sale of the essential business operations of PAION with the approval of the insolvency administrator in both procedures.

In early 2024, the sale of business operations of PAION was completed and starting February 2024, PAION has continued its business as a subsidiary of the Humanwell Healthcare Group as an independent company under the name PAION Pharma GmbH.

Everest Medicines Limited

7 unchanged sentences

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

Royalty revenue recognized under this agreement for the year ended December 31, 2023 was $ 1.4 million.

Royalty revenue recognized from the date of acquisition of La Jolla to December 31, 2022 is not material.

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

Royalty revenue recognized under this agreement for the years ended December 31, 2024 and 2023 was $ 4.7 million and $ 1.4 million, respectively.

Royalty revenue recognized under this agreement from the date of acquisition of La Jolla to December 31, 2022 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.

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

We recognized $ 2.4 million and $ 0.8 million in revenue under this agreement for the year ended December 31, 2023 and from the acquisition of La Jolla to December 31, 2022, respectively.

W e recognized $ 3.2 million and $ 2.4 million in revenue under this agreement for the years ended December 31, 2024 and 2023, respectively.

We recognized $ 0.8 million in revenue under this agreement from the acquisition of La Jolla to December 31, 2022.

INNOVIVA, INC.

1 unchanged sentence

In-License Agreements

In December 2024, we entered into an exclusive distribution and license agreement with Basilea under which we were granted exclusive marketing rights to ZEVTERA ® in the U.S.

The agreement will remain in effect until the expiration of market exclusivity of ZEVTERA ® in the U.S.

in 2034 (the “initial term”), subject to automatic renewal unless either party provides notice.

We paid an upfront fee of $ 4.0 million, which we recognized as an intangible asset and will be amortized over the initial term of the agreement.

We will exclusively purchase ZEVTERA ® (pre-packaging and labeling) from Basilea throughout the term.

We are also obligated to pay Basilea tiered royalties ranging from the high-teens to mid-twenties, as well as tiered milestones, on annual net sales in the U.S.

We anticipate commercializing ZEVTERA ® in mid-year 2025 and, therefore, have not incurred any royalties or sales milestone payments for the year ended December 31, 2024.

George Washington University

3 unchanged sentences

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

We recognized $ 2.5 million for the year ended December 31, 2023 under this agreement.

Amounts recognized f rom the date of acquisition of La Jolla to December 31, 2022 were not material.

We recognized $ 3.4 million and $ 2.5 million for the years ended December 31, 2024 and 2023, respectively, under this agreement.

Amounts recognized from the date of acquisition of La Jolla to December 31, 2022 were no t 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 ® .

We recognized $ 1.4 million for the year ended December 31, 2024 under this agreement.

For the year ended December 31, 2023, we recognized $ 1.2 million as 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.

From the date of acquisition of La Jolla to December 31, 2022, amounts recognized under this agreement were not material.

For the years ended December 31, 2024 and 2023 and from the date of acquisition of La Jolla to December 31, 2022, royalties recognized under this agreement were no t material.

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 is retroactive to the date of the first commercial sale of XERAVA ® and shall continue until there are no longer any valid claims of the Paratek patents, which expired in October 2023 .

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 are no longer any valid claims of the Paratek patents, which expired in October 2023 .

For the year ended December 31, 2023, and from the date of acquisition of La Jolla to December 31, 2022, amounts recognized under this agreement were not material.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

Royalty expense on durlobactam arising from our net sales of XACDURO ® for the year ended December 31, 2023 was immaterial.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Royalty expense on durlobactam arising from our net sales of XACDURO ® for the year ended December 31, 2024 and 2023 was no t material.

CONSOLIDATED ENTITIES AND ACQUISITIONS

9 unchanged sentences

Prior to the closing of the transaction and as part of the agreement, TRC distributed its ownership interests and investments in InCarda Therapeutics (“InCarda”), Inc., ImaginAb, Inc.

(“ImaginAb”), Gate Neurosciences (“Gate”), Inc.

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

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

We accounted for the transaction similar to an upstream sale between a parent and a VIE under ASC 810-10.

As such, ITH recorded the transferred investments at their respective carrying values and no gain or loss was recognized in the consolidated statement of income.

The summarized financial information of TRC for the relevant periods through the sale date in 2022 are presented as follows:

Income statements

Year Ended December 31,

The summarized financial information of TRC from January 1, 2022 to July 20, 2022, the date of the sale of our ownership interest in TRC, is presented as follows:

(In thousands)

6 unchanged sentences

Changes in fair values of equity and

long-term investments

(1) The year ended December 31, 2022 represents the period from January 1, 2022 to July 20, 2022, the date of the sale of our ownership interest in TRC.

long-term investments, net

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2 unchanged sentences

In addition, General Partner is entitled to an annual performance fee based on the Net Profits of the Partnership during the annual measurement period.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Partnership Agreement includes a lock-up period of thirty-six months after which Strategic Partners is entitled to make withdrawals from the Partnership as of such lock-up expiration date and each anniversary thereafter, subject to certain limitations.

9 unchanged sentences

In addition, as our investment in the Partnership is a passive investment for the Company and is not part of our main operations, the investments are presented as part of “Equity and long-term investments” in our consolidated balance sheets.

Accordingly, a portion of our investments, which consist of cash and money market funds that we expect to be distributed in the next 12 months, were classified as ISP Fund investments in the consolidated balance sheet as of December 31, 2024, and the remaining equity investments managed by ISP Fund LP are expected to be distributed through April 2026.

We report in our consolidated statements of 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”.

4 unchanged sentences

During the year ended December 31, 2024, the Partnership incurred $ 3.7 million in net investment-related expenses, generated $ 4.4 million interest income, recorded $ 5.3 million in net realized losses and $ 51.5 million in net unrealized losses as changes in fair values of equity and long-term investments, net, in the consolidated statement of income.

During the year ended December 31, 2022, the Partnership incurred $ 5.2 million in net investment-related expenses, generated $ 2.0 million interest income, recorded $ 6.8 million in net realized gains and $ 9.9 million in net unrealized losses as changes in fair values of equity and long-term investments, net, in the consolidated statement of income.

During the year ended December 31, 2021, the Partnership incurred $ 3.6 million in net investment-related expense, generated $ 1.8 million interest and dividend income, and recorded net $ 10.5 million realized gains and net $ 2.4 million unrealized losses as changes in fair values of equity and long-term investments, net, in the consolidated statement of income.

We account for the long-term investments held by ISP Fund LP as of December 31, 2023 and 2022 as equity investments measured at fair value and the investment in convertible notes as of December 31, 2022 as trading security.

During the year ended December 31, 2023, the Partnership incurred $ 4.3 million in net investment-related expenses, generated $ 6.3 million interest income, recorded $ 2.4 million in net realized losses and $ 6.7 million in net unrealized losses as changes in fair values of equity and long-term investments, net, in the consolidated statement of income.

During the year ended December 31, 2022, the Partnership incurred $ 5.2 million in net investment-related expense, generated $ 2.0 million interest income, and recorded net $ 6.8 million realized gains and net $ 9.9 million unrealized losses as changes in fair values of equity and long-term investments, net, in the consolidated statement of income.

We account for the long-term investments held by ISP Fund LP as of December 31, 2024 and 2023 and 2022 as equity investments measured at fair value.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Entasis Therapeutics Holdings Inc.

5 unchanged sentences

We used the Black-Scholes-Merton pricing model to estimate the fair value of the warrants.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

4 unchanged sentences

The remeasurement resulted in a $ 7.8 million loss in the first quarter of 2022 which was included in changes in fair values of equity method investments, net, in the consolidated statement of income for the year ended December 31, 2022.

We completed our acquisition of Entasis’ minority interest on July 11, 2022.

We completed our acquisition of Entasis’ noncontrolling interest on July 11, 2022.

No payments were made toward the convertible promissory note through the date of acquisition of Entasis.

In connection with the acquisition, all of the Entasis warrants were replaced with Innoviva warrants (the “Replacement Warrants”) of equivalent value and bearing the same terms.

The Replacement Warrants are classified as equity.

We recognized the difference between the acquisition price and the carrying value of the acquired minority interest on July 11, 2022 in our additional paid-in capital.

The Replacement Warrants were classified as equity.

We recognized the difference between the acquisition price and the carrying value of the acquired noncontrolling interest on July 11, 2022 in our additional paid-in capital.

The fair values assigned to assets acquired and liabilities assumed as of February 17, 2022 were based on management’s best estimates and assumptions.

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

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the year ended December 31, 2022, we recorded measurement period adjustments of $ 4.7 million decrease in goodwill, primarily related to a decrease in estimated purchase price of $ 1.4 million, an increase in noncontrolling interests of $ 1.7 million, and an increase in intangible assets of $ 2.5 million.

18 unchanged sentences

Total assets acquired, net

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The goodwill arising from the acquisition of Entasis is primarily attributable to Entasis’ assembled workforce and the value associated with growing our business more efficiently.

6 unchanged sentences

ISO acquired La Jolla at a price of $ 6.23 per share.

La Jolla is dedicated to the commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases.

La Jolla brought to Innoviva an established product portfolio, including GIAPREZA ® (angiotensin II), approved to increase blood pressure in adults with septic or other distributive shock and XERAVA ® (eravacycline) for the treatment of complicated intra-abdominal infections (cIAIs).

1 unchanged sentence

The fair values assigned to assets acquired and liabilities assumed as of August 22, 2022 were based on management’s best estimates and assumptions.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the year ended December 31, 2022, we recorded measurement period adjustments of $ 3.7 million increase in goodwill, primarily related to a decrease in inventory and intangible assets of $ 7.7 million and $ 1.5 million, respectively, and an increase in deferred tax liabilities of $ 2.6 million, partially offset by a decrease in other long-term liabilities of $ 8.3 million.

3 unchanged sentences

The cumulative impact of the measurement period adjustments included did not impact the consolidated net income for the year ended December 31, 2023.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

20 unchanged sentences

Refer to Note 8, “Goodwill and Intangible Assets”, for more discussion on the intangible assets recognized as part of this acquisition.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pro Forma Financial Information

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

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

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

3 unchanged sentences

Net income attributable to Innoviva stockholders

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

EQUITY AND LONG-TERM INVESTMENTS AND FAIR VALUE MEASUREMENTS

5 unchanged sentences

Armata also entered into a voting agreement with the Company and ISO, pursuant to which the Company and ISO agreed not to vote or take any action by written consent with respect to any common shares held by the Company and ISO that represent, in the aggregate, more than 49.5 % of the total number of shares of Armata’s common stock for voting on the matters related to election or removal of Armata’s board members.

The voting agreement will expire the earlier of the second anniversary of the agreement effective date and approval by the FDA of any of Armata’s product candidates for marketing and commercial distribution.

The voting agreement will expire on the earlier of the second anniversary of the agreement effective date and approval by the FDA of any of Armata’s product candidates for marketing and commercial distribution.

During the fourth quarter of 2021, ISO also purchased an additional 1,212,122 shares of Armata common stock for approximately $ 4.0 million.

5 unchanged sentences

In addition, as of February 9, 2022, Armata entered into an amended and restated investor rights agreement with the Company and ISO, pursuant to which for as long as the Company and ISO hold at least 12.5 % of the outstanding shares of Armata’s common stock on a fully-diluted, the Company and ISO shall have the right to designate two directors to Armata’s board of directors, and for so long as the Company and ISO hold at least 8 %, but less than 12.5 %, of the outstanding shares of Armata’s common stock on a fully-diluted basis, the Company and ISO shall have the right to designate one director to Armata’s board of directors, subject to certain conditions and qualifications set forth in the amended and restated investor rights agreement.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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

As of December 31, 2023 and 2022, we owned approximately 69.4 % of Armata’s common stock.

As of December 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 December 31, 2024 and 2023, we owned approximately 69.3 % and 69.4 %, respectively, 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 invested in 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.

3 unchanged sentences

On July 10, 2023, ISO and Armata executed an amendment to the Armata Convertible Note extending the maturity date from January 10, 2024 to January 10, 2025 .

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

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

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

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On November 12, 2024, ISO and Armata executed an amendment to the Armata Convertible Note extending the maturity date from January 10, 2025 to January 10, 2026 .

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

The Armata July 2023 Term Loan is subject to an interest rate of 14 % per annum and is due to mature on January 10, 2025 .

The July 2023 Credit and Security Agreement is secured by substantially all of the assets of Armata and its domestic and foreign material subsidiaries.

On November 12, 2024, ISO and Armata executed an amendment to the Armata July 2023 Term Loan extending the maturity date from January 10, 2025 to January 10, 2026 .

On March 4, 2024, ISO and Armata entered into a Credit and Security Agreement (the “March 2024 Credit and Security Agreement”), under which we extended a term loan to Armata (the “Armata March 2024 Term Loan”) in an aggregate amount of $ 35.0 million.

The Armata March 2024 Term Loan is subject to an interest rate of 14 % per annum and is due to mature on June 4, 2025 .

The March 2024 Credit and Security Agreement is secured by substantially all of the assets of Armata and its domestic and foreign material subsidiaries.

The investments in Armata’s common stock and warrants provide Innoviva and ISO the ability to have significant influence, but not control, over Armata’s operations.

11 unchanged sentences

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

We account for the Armata Term Loan as a trading security, measured at fair value using an income approach based on the discounted value of expected future cash flows.

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

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

For the Armata common stock and warrants, we recorded $ 77.4 million unrealized gains, $ 152.5 million unrealized losses and $ 78.7 million unrealized gains as changes in fair values of equity method investments, net, in the consolidated statements of income for the years ended December 31, 2023, 2022 and 2021, respectively.

For the Armata Convertible Note and Term Loan, we recorded $ 21.8 million and $ 2.0 million unrealized gain, respectively, as changes in fair values of equity and long-term investments, net, in the consolidated statement of income for year ended December 31, 2023.

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.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 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 $ 46.4 million, $ 5.9 million, $ 42.1 million, $ 30.2 million and $ 39.3 million, respectively .

As of December 31, 2023 the fair values of our holdings of Armata common stock, warrants, the Armata Convertible Note and 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 $ 64.3 million unrealized losses, $ 77.4 million unrealized gains and $ 152.5 million unrealized losses as changes in fair values of equity method investments, net, in the consolidated statements of income for the years ended December 31, 2024, 2023 and 2022, respectively .

For the Armata Convertible Note, we recorded $ 9.8 million unrealized losses and $ 21.8 million unrealized gains as changes in fair values of equity and long-term investments, net, in the consolidated statements of income for the years ended December 31, 2024 and 2023, respectively.

For the Armata July 2023 Term Loan, we rec orded $ 3.2 million and $ 2.0 million unrealized gains as changes in fair values of equity and long-term investments, net, in the consolidated statements of income for the years ended December 31, 2024 and 2023, respectively.

For the Armata March 2024 Term Loan, we recorded $ 4.3 million unrealized gains as changes in fair values of equity and long-term investments, net, in the consolidated statements of income for the year ended December 31, 2024.

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

7 unchanged sentences

Income Statement Information

Twelve Months Ended

September 30,

Twelve Months Ended September 30,

(In thousands)

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The summarized financial information, including the portion we did not own, is presented for Entasis on a one quarter lag regardless of the date of our investments as follows:

Income Statement Information

Twelve Months Ended

September 30,

(In thousands)

Loss from operations

Equity Investment in InCarda

17 unchanged sentences

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

We account for our investments in InCarda under the measurement alternative.

With the exception of the InCarda Series D Warrants, which is measured at fair value, we account for the aforementioned investments in InCarda under the measurement alternative.

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

7 unchanged sentences

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

On January 17, 2024, ITH purchased a secured convertible promissory note (the “InCarda Convertible Note”) from InCarda for a total purchase price of $ 0.4 million.

The InCarda Convertible Note bears an annual interest rate of 8 % and shall be due and payable upon the earlier to occur of certain events defined in the InCarda Convertible Note.

The InCarda Convertible Note will convert into equity securities or shadow equity securities of InCarda depending upon the occurrence of a qualified event or a qualified financing event as also defined in the InCarda Convertible Note.

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

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

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2023, we recorded $ 4.8 million in fair value of InCarda’s Series C preferred stock and $ 0.1 million in fair value of Series D warrants .

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

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

We recorded $ 3.1 million, $ 8.7 million, and $ 0.7 milli on unrealized loss as changes in fair values of equity and long-term investments, net, in the consolidated statements of income for the years ended December 31, 2023, 2022, 2021, respectively.

As of December 31, 2024 and 2023, we recorded as equity and long-term investments in the 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 December 31, 2024 and 2023, we recognized as equity and long-term investments in the 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 December 31, 2024, we recorded $ 0.4 million in fair value of the InCarda Convertible Note as equity and long-term investments in the consolidated balance sheet.

During the year ended December 31, 2024, there were immaterial changes in the carrying amount of our investments.

We recorded $ 3.1 million and $ 8.7 million in unrealized loss as changes in fair values of equity and long-term investments, net, in the consolidated statements of income for the years ended December 31, 2023 and 2022, respectively.

Equity Investment in ImaginAb

7 unchanged sentences

On September 14, 2023, ITH entered into a securities purchase agreement with ImaginAb to purchase another 405,852 shares of ImaginAb Series C-2 preferred stock for $ 0.6 million.

On February 23, 2024, ITH purchased a subordinated convertible promissory note (the “ImaginAb Convertible Note”) from ImaginAb for a total purchase price of $ 2.7 million.

The ImaginAb Convertible Note bears an annual interest rate of 10 % and shall be due and payable upon the earlier to occur of January 31, 2025 and certain events defined in the ImaginAb Convertible Note.

Under certain circumstances, the ImaginAb Convertible Note is convertible at the option of ITH into ImaginAb’s equity securities at defined conversion prices.

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

On October 31, 2024, ITH entered into an agreement with ImaginAb to amend the ImaginAb Convertible Note.

Pursuant to the agreement, the principal amount of the ImaginAb Convertible Note was increased from $ 2.7 million to $ 4.8 million, which represents the principal as of February 23, 2024, accrued interest as of amendment date, commitment fees and an additional cash investment of $ 1.5 million.

On January 13, 2025, ITH and ImaginAb executed an amendment to the ImaginAb Convertible Note extending the maturity date from January 31, 2025 to May 30, 2025.

All other material terms of the ImaginAb Convertible Note were unchanged during the aforementioned amendments to the ImaginAb Convertible Note.

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

4 unchanged sentences

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

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

As of December 31, 2023 and 2022, $ 7.6 million and $ 6.4 million, respectively, was recorded as equity and long-term investments in the consolidated balance sheets, respectively, and there was no change to the fair value of our investment in ImaginAb.

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

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 December 31, 2024 and 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 consolidated balance sheets.

As of December 31, 2024, we recorded $ 5.0 million in fair value of the ImaginAb Convertible Note as equity and long-term investments in the consolidated balance sheets.

During the year ended December 31, 2024, we recorded $ 0.1 million in net unrealized gain on the ImaginAb Convertible Note as changes in fair values of equity and long-term investments, net, in the consolidated statements of income.

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

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Convertible Promissory Note in Gate Neurosciences

9 unchanged sentences

A qualified financing is a sale or series of sales of preferred stock where (i) at least 50 percent of counterparties are not existing shareholders, (ii) net proceeds to Gate are at least $35.0 million, and (iii) the stated or implied equity valuation of Gate is at least $80.0 million.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On July 20, 2022, under the terms of the TRC Equity Purchase Agreement, TRC transferred to ITH all of TRC’s debt investments in Gate.

5 unchanged sentences

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

On February 13, 2024, ITH entered into a Third Note Amendment Agreement with Gate to amend the Gate Convertible Note.

Pursuant to the Third Note Amendment Agreement, the principal amount of the Gate Convertible Note was increased from $ 27.7 million to $ 33.5 million, which represents the principal and accrued interest as of the third amendment date and an additional cash investment of $ 5.0 million.

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.

On November 13, 2024, ITH entered into a Fifth Note Amendment Agreement with Gate to amend the Gate Convertible Note.

Pursuant to the Fifth Note Amendment Agreement, the principal amount of the Gate Convertible Note was increased from $ 39.8 million to $ 50.6 million, which represents the principal and accrued interest as of the fifth amendment date and an additional cash investment of $ 10.0 million.

All other material terms, except for the conversion terms of the Gate Convertible Note, remained unchanged.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31, 2024 and 2023, the fair value of the Gate Convertible Note was estimated at $ 50.9 million and $ 28.0 million, respectively, and recorded as equity and long-term investments in the consolidated balance sheets.

We recorded $ 0.4 million of unrealized loss, $ 0.6 million of unrealized gain, and $ 0.8 million of unrealized loss as changes in fair values of other equity and long-term investments, net, in the consolidated statements of income for the years ended December 31, 2023, 2022 and 2021, respectively.

We recorded $ 0.4 million of unrealized loss and $ 0.6 million of unrealized gain as changes in fair values of equity and long-term investments, net, in the consolidated statements of income for the years ended December 31, 2023 and 2022, respectively.

The change in fair value is not material for the year ended December 31, 2024.

Equity Investment in Nanolive

13 unchanged sentences

As of December 31, 2024 and 2023, $ 10.6 million of investment in Nanolive was recorded as equity and long-term investments in the 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

Reclassification of current portion

Equity and long-term investments as of December 31, 2024

INNOVIVA, INC.

12 unchanged sentences

As of December 31, 2024 and 2023, all available-for-sale securities were money market funds, and there was no credit loss recognized.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements

7 unchanged sentences

Equity investment - Armata Warrants

Equity investment - InCarda Warrants

Convertible debt investment - Armata Note

Term loan investment - Armata Term Loan

Term loan investment - Armata July 2023 Term Loan

Term loan investment - Armata March 2024 Term Loan

Convertible debt investment - InCarda Note

Convertible debt investment - ImaginAb Note

Convertible debt investment - Gate Note

1 unchanged sentence

Total fair value of debt

Contingent value rights

Total liabilities at estimated fair value

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(1) The investments held by ISP Fund LP, consisted of $ 248.5 million in equity investments, which included private placement positions 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 subsequent years.

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

5 unchanged sentences

Equity investment - Armata Warrants

Equity investment - InCarda Warrants

Convertible debt investment - Armata Note

Term loan investment - Armata July 2023 Term Loan

Convertible debt investment - Gate Note

3 unchanged sentences

Total liabilities at estimated fair value

(1) The investments held by ISP Fund LP, consisted of $ 295.4 million in equity investments, which included private placement positions and convertible notes of $ 54.6 million, and $ 25.1 million in money market funds.

Our total capital contribution of $ 300.0 million was subject to a 36-month lock-up period from the date of such capital contributions.

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

The fair values of our equity investments in Armata’s common stock and publicly traded investments held by ISP Fund LP are based on the quoted prices in active markets and are classified as Level 1 financial instruments.

The fair values in the warrants in Armata classified within Level 2 are based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

The InCarda Warrants, the Gate Convertible Note, the Armata Convertible Note, the Armata Term Loan, private placement positions and convertible notes held by ISP Fund LP, and contingent value rights are classified as Level 3 financial instruments as these securities are not publicly traded and the assumptions used in the valuation model for valuing these securities are based on significant unobservable and observable inputs including those of publicly traded peer companies.

The Gate Convertible Note, the Armata Convertible Note, the Armata July 2023 Term Loan, the Armata March 2024 Term Loan, The Incarda Covertible Note, the InCarda Warrants, the ImaginAb Convertible Note, private placement positions and convertible notes held by ISP Fund LP, and contingent value rights are classified as Level 3 financial instruments as these securities are not publicly traded and the assumptions used in the valuation model for valuing these securities are based on significant unobservable and observable inputs including those of publicly traded peer companies.

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

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

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CAPITALIZED FEES PAID

6 unchanged sentences

Net carrying value

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

These milestone fees are amortized over their estimated useful lives commencing upon the commercial launch of the product in their respective regions with the amortization recorded as a reduction in revenue from collaborative arrangements.

2 unchanged sentences

Amortization for each of the years ended December 31, 2024, 2023 and 2022 was $ 13.8 million .

The remaining estimated amortization is $ 13.8 million for each of the years from 2024 to 2027, $ 13.7 million for the year 2028, and $ 14.8 million thereafter.

The remaining estimated amortization is $ 13.8 million for each of the years from 2025 to 2027, $ 13.7 million for the year 2028, $ 9.4 million for the year 2029 and $ 5.4 million thereafter.

GOODWILL AND INTANGIBLE ASSETS

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

The carrying amount of goodwill as of December 31, 2023 and 2022 was $ 17.9 million and $ 26.7 million, respectively.

The carrying amount of goodwill as of December 31, 2024 and 2023 was $ 17.9 million .

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

15 unchanged sentences

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

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

We recognized amortization expense of $ 21.8 million and $ 5.6 million for the years ended December 31, 2023 and 2022, respectively.

As discussed in Note 4 “License and Collaboration Arrangements”, we capitalized the upfront fee of $ 4.0 million that we paid to Basilea under our exclusive distribution and license agreement as an intangible asset.

This amount is included in marketed products in the table above and will be amortized over the term of the agreement.

We recognized amortization expense of $ 25.9 million, $ 21.8 million and $ 5.6 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Future amortization expense is expected to be $ 26.3 million for each of the years from 2025 to 2029 and $ 74.3 million thereafter.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

BALANCE SHEET COMPONENTS

6 unchanged sentences

As of December 31, 2024 and 2023, total inventory included net fair value adjustments resulting from the acquisition of La Jolla of approximately $ 9.2 million and $ 23.0 million, respectively , which will be 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 $ 27.2 million and $ 10.0 million for the years ended December 31, 2023 and 2022.

The fair value adjustments recorded as part of cost of products sold amounted to $ 13.8 million, $27 .2 million and $ 10.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Other Accrued Liabilities

2 unchanged sentences

Accrued contract manufacturing expenses

Accrued clinical expenses

Accrued research expenses

Accrued clinical and research expenses

Accrued professional services

4 unchanged sentences

Total other accrued liabilities

Amount in “Other” as of December 31, 2024 includes $ 5.3 million in consideration received under a letter agreement we have entered into with Zai Lab as discussed in Note 4, “License and Collaboration Arrangements”.

Other Long-Term Liabilities

79 unchanged sentences

As of December 31, 2024 , the aggregate intrinsic value of options outstanding and options exercisable was $ 5.0 million and $ 2.4 million, respectively .

As of December 31, 2022, the aggregate intrinsic value of options outstanding and options exercisable was not material.

As of December 31, 2023, the aggregate intrinsic value of options outstanding and options exercisable was $ 3.6 million and $ 0.8 million, respectively .

As of December 31, 2024, 759,904 options were exercisable.

3 unchanged sentences

The total estimated fair value of options vested was no t material for the year ended December 31, 2022.

The total estimated fair value of RSUs vested was $ 3.9 million, $ 2.3 million and $ 1.1 million for the years December 31, 2023, 2022 and 2021.

The total estimated fair value of RSUs vested was $ 3.2 million, $ 3.9 million and $ 2.3 million for the years December 31, 2024, 2023 and 2022, respectively.

The total estimated fair value of RSAs vested was not material for the year ended December 31, 2024, 2023, and 2022.

Valuation Assumptions

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

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

Year Ended December 31,

5 unchanged sentences

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

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.

From program inception through December 31, 2022, we repurchased 647,394 shares in the open market at an average price of $ 13.13 per share for a total amount of approximately $ 8.5 million.

For the year ended December 31, 2023, we repurchased 6,173,565 shares in the open market at an average price of $ 12.39 per share for a total amount of approximately $ 76.5 million.

Subsequent to December 31, 2023 and through February 15, 2024, we have repurchased 131,826 shares in the open market at an average price of $ 15.93 per share for a total amount of approximately $ 2.1 million.

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.

The share repurchase program was completed in April 2024.

All of the repurchased shares were retired.

In April 2024, we retired all 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.

INNOVIVA, INC.

27 unchanged sentences

The outstanding principal balance was reduced slightly to $ 96.2 million.

This remaining balance was fully paid upon the maturity date in January 2023.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our outstanding 2023 Notes balance consisted of the following as of December 31, 2022:

(In thousands)

December 31, 2022

Debt issuance costs, net

Net carrying amount

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

The following table sets forth total interest expense recognized related to the 2023 Notes for the years ended December 31, 2023 and 2022:

21 unchanged sentences

In the event of default or a fundamental change (as defined above), holders of the 2025 Notes may require us to repurchase all or a portion of their 2025 Notes at price equal to 100 % of the principal amount of the 2025 Notes, plus any accrued and unpaid interest.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Effective January 1, 2022, we adopted ASU 2020-06 using a modified retrospective method, under which financial results reported in prior periods were not adjusted.

2 unchanged sentences

The allocation was performed in a manner that reflected our non-convertible debt borrowing rate for similar debt.

The equity component of the 2025 Notes of $ 67.3 million was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2025 Notes and the fair value of the liability of the 2025 Notes on the date of issuance.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the 2025 Notes on the date of issuance.

The excess of the principal amount of the liability component over its carrying amount (“debt discount”) was amortized to interest expense using the effective interest method over the term of the 2025 Notes.

7 unchanged sentences

The issuance costs are presented as a deduction from the outstanding principal balance of the 2025 Notes and are amortized on a straight-line basis over the term of the 2025 Notes under the effective interest rate method.

As of January 1, 2022, the annual effective interest rate on the 2025 Notes was 2.88 %.

Beginning January 1, 2022, the annual effective interest rate on the 2025 Notes is 2.88 %.

8 unchanged sentences

Amortization of debt issuance costs

Amortization of debt discount

Total interest and amortization expense

3 unchanged sentences

The 2028 Notes were sold in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The net proceeds from the sale of the $ 261.0 million aggregate principal amount of 2028 Notes were approximately $ 252.6 million after deducting the initial purchasers’ discounts and commissions and our estimated offering expenses.

5 unchanged sentences

The initial conversion rate was 38.1432 shares per $1,000 principal amount of the 2028 Notes, subject to customary anti-dilution adjustment in certain circumstances, which represented an initial conversion price of approximately $ 26.22 per share.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Prior to September 15, 2027, the 2028 Notes will be convertible at the option of the holders only upon the occurrence of specified events and during certain periods, and will be convertible on or after September 15, 2027, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2028 Notes.

12 unchanged sentences

The cap price of the capped call transaction is initially $ 33.9850 per share and is subject to certain adjustments under the terms of the capped call transactions.

The capped call transactions cover, subject to customary adjustments, the number of shares of common stock initially

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

underlying the 2028 Notes.

The capped call transactions cover, subject to customary adjustments, the number of shares of common stock initially underlying the 2028 Notes.

The capped call transactions are expected generally to reduce potential dilution to our common stock upon conversion of the 2028 Notes or at our election (subject to certain conditions) offset any cash payments we are required to make in excess of the aggregate principal amount of converted 2028 Notes, as the case may be, with such reduction or offset subject to a cap.

4 unchanged sentences

Net carrying amount

The following table sets forth total interest expense recognized related to the 2028 Notes for the year ended December 31, 2023 and from the issuance through December 31, 2022:

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth total interest expense recognized related to the 2028 Notes for the years ended December 31, 2024, 2023, and from the issuance through December 31, 2022:

Year Ended December 31,

Date of Issuance Through

1 unchanged sentence

December 31, 2022

Contractual interest expense

9 unchanged sentences

Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds.

The current maximum royalty rate is 14 %.

The maximum royalty rate through December 31, 2023 was 14 %.

Starting January 1, 2024, the maximum royalty rate was increased to 18 % based on the terms of the Agreement.

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

For the years ended December 31, 2023, we recognized interest expense of $ 6.5 million on the deferred royalty obligation.

For the years ended December 31, 2024 and 2023, we recognized interest expense of $ 9.8 million and $ 6.5 million, respectively, on the deferred royalty obligation.

From the date of our acquisition of La Jolla through December 31, 2022, we recognized interest expense of $ 1.8 million on the deferred royalty obligation.

The carrying value of the deferred royalty obligation as of December 31, 2024 and 2023 was $ 69.5 million and $ 69.9 million, respectively, (refer to Note 9 “Balance Sheet Components ” ).

During the year ended December 31, 2023, we made royalty payments to HCR of $ 5.4 million.

During the years ended December 31, 2024 and 2023, we made royalty payments to HCR of $ 9.1 million and $ 5.4 million, respectively.

From the date of acquisition of La Jolla through December 31, 2022, we made royalty payments to HCR of $ 1.0 million.

The deferred royalty obligation was valued using Level 3 inputs, and its carrying value as of December 31, 2024 and 2023 approximates fair value.

The fair value of the deferred royalty obligation was calculated as the

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

discounted deferred royalty obligations based on revenue projections for GIAPREZA ® .

value of the deferred royalty obligation was calculated as the discounted deferred royalty obligations based on revenue projections for GIAPREZA ® .

As of December 31, 2024, the annual effective interest rate of the deferred royalty obligation is 9.44 %.

11 unchanged sentences

We have operating leases for our corporate headquarters, office spaces and laboratory facilities.

Our operating leases include a facility lease consisting of 20,062 square feet of office and laboratory space in Waltham, Massachusetts.

Effective April 2022, we exercised our renewal option for to extend the lease term for three additional years through December 2025.

In 2019, we entered into an operating lease for our headquarters in Burlingame, California for approximately 2,111 rentable square feet.

The lease commenced in November 2019 with an initial term of thirty-six calendar months, which was subsequently amended to expire in December 2027 .

Our operating leases include a facility lease consisting of 15,500 square feet of office space in Waltham, Massachusetts, which expires in March 2029 .

The components of lease costs are as follows:

15 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We have not presented the comparative information above for the year ended December 31, 2021 as our operating lease during this year was not material.

Future minimum lease payments on our operating leases as of December 31, 2024 are as follows:

4 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 December 31, 2024, we have approximately $ 6.7 million U.S.

dollar equivalent in outstanding purchase commitments under the agreement for the year 2024, which will be utilized in early 2025.

We also have approximately $ 6.5 million, $ 7.3 million and $ 5.9 million U.S.

dollar equivalent in purchase commitments under the agreement for the years 2025, 2026 and 2027, respectively.

Legal Proceedings

12 unchanged sentences

On November 14, 2023, La Jolla filed a Third Amended Complaint adding additional infringement claims against the Fresenius Kabi Defendants.

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

Fact discovery is set to conclude on February 29, 2024 and expert discovery will be complete by July 12, 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 December 31, 2023.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On February 18, 2025, La Jolla, as well as The George Washington University (collectively, with the La Jolla entities, the “Plaintiffs”) entered into a settlement agreement (the “Settlement Agreement”) with Gland and the Fresenius Kabi Defendants (collectively, “Defendants”) resolving the Hatch-Waxman Act concerning Gland’s ANDA filing.

Under the terms of the Settlement Agreement, Plaintiffs granted Defendants a perpetual, royalty-free and fully paid-up, non-exclusive, non-sublicensable, non-transferable right and license solely to make, have made, use, sell, offer to sell, import, and/or distribute the product that is subject to Gland’s ANDA in the United States commencing in the early 2030s, subject to certain exceptions as is customary in these type of agreements.

As required by law, the settlement is subject to review by the U.S.

Department of Justice and the Federal Trade Commission.

Indemnifications and Other Contingencies

15 unchanged sentences

Expected tax at federal statutory rate

State income tax, net of federal benefit

State income tax expense (benefit), net of federal benefit

Federal and state research credits

Section 250 deduction

Foreign derived intangible income deduction

Noncontrolling interest

19 unchanged sentences

Inventory fair value adjustment

Net deferred tax liabilities

Net deferred tax assets (liabilities)

We record deferred tax assets if the realization of such assets is more likely than not to occur.

7 unchanged sentences

• level of profitability on a quarterly basis.

As of December 31, 2023, we had federal net operating loss carryforwards of approximately $ 543.5 million , which will expire beginning 2034.

As of December 31, 2024 , we had federal net operating loss carryforwards of approximately $ 520.6 million , $ 456.5 million of which do not expire.

As of December 31, 2024, we also had state net operating loss carryforwards of approximately $ 1.0 billion , which will expire beginning 2030 and state research tax credits of approximately $ 33.3 million , which do not expire.

5 unchanged sentences

Similar rules may apply under state tax laws.

As a result of the acquisition of Entasis, we conducted a study of Entasis’ ownership changes and estimated that we will be able to utilize $ 155.6 million of its federal net operating losses, which are subject to annual limitations.

As of December 31, 2024, $ 154.8 million of Entasis’ federal net operating losses and $ 365.8 million of La Jolla’s federal operating losses from the acquisitions in 2022, both subject to annual limitations, were available for future utilization.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As a result of the acquisition of La Jolla, we also performed an analysis of its ownership changes and estimated that we will be able to utilize $ 309.5 million of its federal net operating losses, which are subject to annual limitations.

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

As of December 31, 2024 and 2023, we had no accrued interest or penalties due to the Company ’s net operating losses available to offset any tax adjustments.

We do not have any tax positions for which a significant change in the total amount of gross unrecognized tax benefits is reasonably possible within 12 months of December 31, 2024.

Uncertain Tax Positions

2 unchanged sentences

Unrecognized tax benefits as of December 31, 2021

Net decrease in tax portions for 2021

Net increase in tax portions for 2022

Unrecognized tax benefits as of December 31, 2022

3 unchanged sentences

Unrecognized tax benefits as of December 31, 2024

The increase of $ 41.9 million in 2024 was primarily due to our strategic intercompany intellectual property alignment across different jurisdictions.

We are subject to taxation in the U.S.

and various state jurisdictions.

and various state and foreign jurisdictions.

The tax years 2006 through 2013, 2015 and forward remain open to examination by the federal and most state tax authorities due to net operating loss and overall credit carryforward positions.

We are not currently subject to any income tax audits by federal or state taxing authorities.

In December 2021, the Organization for Economic Cooperation and Development (“OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting legislation.

We are in the process of evaluating whether and when these new rules may come into effect and apply to us.

We are in the process of evaluating whether and when these new rules may come into effect and apply to us, including the eligibility to qualify for safe harbor rules .

We plan to treat the tax if any as a period cost.

1 unchanged sentence

As such, the potential future quantitative impact of the enacted or substantively enacted legislation is not yet reasonably estimable.

SUBSEQUENT EVENTS

On February 13, 2024, ITH entered into a Third Note Amendment Agreement with Gate to amend the Gate Convertible Note.

Pursuant to the Third Note Amendment Agreement, the principal amount of the Gate Convertible Note was increased from $ 27.7 million to $ 33.5 million, which represents the principal and accrued interest as of the amendment date and an additional cash investment of $ 5.0 million.

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

On February 23, 2024, ITH purchased a subordinated convertible promissory note (the “ImaginAb Convertible Note”) from ImaginAb for a total purchase price of $ 2.7 million.

The ImaginAb Convertible Note bears an annual interest of 10 % and shall be due and payable upon the earlier to occur of January 31, 2025 and certain events defined in the ImaginAb Convertible Note.

Under certain circumstances, the ImaginAb Convertible Note is convertible at the option of ITH into ImaginAb’s equity securities at defined conversion prices.

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

SEGMENT REPORTING

We operate as a single operating and reportable segment, focused on creating value for our stockholders.

We achieve this by maximizing the value of our respiratory royalty portfolio and growing our investments in innovative healthcare assets that address critical unmet medical needs.

Our Chief Executive Officer , as the chief operating decision-maker (“CODM”), evaluates the company’s financial performance and operational efficiency using consolidated net income.

This helps guide decisions related to commercial operations, product development, and regulatory compliance, ensuring resources are allocated effectively to support growth initiatives.

Consolidated net income also helps inform reinvestment strategies to strengthen our market position and drive innovation.

The accounting policies of the segment are the same as those described in Note 1, “Description of Operations and Summary of Significant Accounting Policies”.

Our revenues are generated primarily from our collaborative arrangements and royalty payments from GSK, located in Great Britain.

We also generate revenue from net product sales of GIAPREZA ® , XERAVA ® , and XACDURO ® , as well as license and other revenues.

Refer to Note 3, “Revenue Recognition”, for more information on our revenues for the periods presented.

Our long-term assets are located within the United States.

The CODM does not review assets at a different level or category than the amounts disclosed in the consolidated balance sheets.

INNOVIVA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below presents the financial information used by the CODM to assess performance, which reconcile to the consolidated net income:

Year Ended December 31,

(In thousands)

Total revenue

Cost of products sold - U.S.

Cost of products sold - Rest of the world

Cost of products sold - Amortization of inventory fair value adjustments

Cost of license revenue

Selling and marketing

General and administrative

Research and development - External services

Research and development - Internal expenses

Amortization of acquired intangible assets

Changes in fair values of equity method investments, net

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

Interest and dividend income

Interest expense

Gain on sale of TRC

Loss on extinguishment of debt

Other expense, net

Income tax expense, net

Consolidated net income

REP ORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

2 unchanged sentences

We have audited the accompanying consolidated balance sheets of Innoviva, Inc.

and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.

5 unchanged sentences

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

5 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Consolidated Entities and Equity and Long-term Investments—Primary Beneficiary Determination for Variable Interest Entity—Refer to Notes 1, 5, and 6 to the consolidated financial statements.

Consolidated Entities and Equity and Long-term Investments—Primary Beneficiary Determination for Variable Interest Entities—Refer to Notes 1, 5, and 6 to the consolidated financial statements.

Critical Audit Matter Description

1 unchanged sentence

The Company evaluates its interests in these entities to determine whether they meet the definition of a variable interest entity (VIE) or a voting interest entity (VOE) and whether the Company is required to consolidate these entities.

A VIE is consolidated by its primary beneficiary, which is the party that has both 1) the power to direct the activities that most significantly impact the economic performance of the VIE and 2) a variable interest that could potentially be significant to the VIE.

To determine whether a variable interest that the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company’s involvement with the VIE.

In general, the parties that make the most significant decisions affecting the VIE (management and representation on the Board of Directors) and have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.

The Company will reconsider whether an entity is a VIE and whether the Company is the primary beneficiary of the entity upon the occurrence of certain types of events.

The determination of the primary beneficiary of a VIE requires significant management judgement.

We identified the primary beneficiary determination for the Company’s VIEs as a critical audit matter due to the complexity of the accounting principles related to the determination of the primary beneficiary of a VIE and the significant judgment required by management in evaluating the agreements and structure of the investments in determining the primary beneficiary of a VIE.

The determination of the primary beneficiary of a VIE requires significant management judgment.

We identified the primary beneficiary determination for the Company’s VIEs as a critical audit matter due to the complexity of the accounting principles related to the determination of the primary beneficiary of a VIE and the significant judgment required by management in evaluating the Company’s role in establishing the VIE, their ongoing rights and responsibilities and identifying which party, if any, has power over those activities.

This required a high degree of auditor judgment and an increased extent of effort, including the involvement of professionals with consolidation accounting expertise, when performing audit procedures to evaluate the Company’s determination of whether it is the primary beneficiary for its VIEs.

1 unchanged sentence

Our audit procedures related to the primary beneficiary determination for VIEs included the following, among others:

• We tested the effectiveness of controls over the Company’s primary beneficiary determination for its VIEs, including management’s determination of the party that has the power to direct the activities that most significantly impact the economic performance of the VIE and a variable interest that could potentially be significant to the VIE.

• We evaluated the appropriateness of the Company’s accounting conclusions for consolidated and unconsolidated VIEs through the following:

o Evaluated the investment structures and terms of the agreements, including reading the purchase agreements and other related documents.

o Evaluated the investment structures and terms of the agreements, including reading the purchase agreements and other related documents which govern the formation and activities of the entity (the Contractual Arrangements).

o Tested whether the Company appropriately determined the primary beneficiary by evaluating the Contractual Arrangements of the entity to determine if the Company has the power to direct activities that most significantly impact the economic performance of the VIE, and if the Company has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could be significant to the VIE.

o For certain VIEs, with the assistance of professionals with expertise in consolidation accounting, evaluated the appropriateness of the Company’s determination of the primary beneficiary of the VIE.

o Evaluated the Company’s disclosures related to the primary beneficiary determination of its consolidated entities and equity and long-term investments.

o Evaluated the Company’s disclosures related to the primary beneficiary determination of its consolidated entities and unconsolidated VIEs.

/s/ Deloitte & Touche LLP

2 unchanged sentences

We have served as the Company’s auditor since 2022.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Innoviva, Inc.

Opinion on the financial statements

We have audited the consolidated balance sheet of Innoviva, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 (not presented herein), the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We served as the Company’s auditor from 2019 to 2021.

San Francisco, California

February 29, 2024

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data