What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-07 · 72 added, 68 removed, 159 unchanged (47% of the section changed)

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Our commercial and marketed products also include GIAPREZA ® (angiotensin II) approved to increase blood pressure in adults with septic or other distributive shock, XERAVA ® (eravacycline) approved for the treatment of complicated intra-abdominal infections in adults, and XACDURO ® (formerly known as sulbactam-durlobactam or SUL-DUR) approved for the treatment of hospital-acquired and ventilator-associated pneumonias caused by Acinetobacter in adults.

In addition, ZEVTERA ® (ceftobiprole), an advanced-generation cephalosporin antibiotic, will be exclusively commercialized by us under a distribution and license agreement with Basilea Pharmaceutica Ltd., (“Basilea”), which we entered into in December 2024.

In addition, ZEVTERA ® (ceftobiprole), an advanced-generation cephalosporin antibiotic, is exclusively commercialized by us in the U.S.

under a distribution and license agreement with Basilea Pharmaceutica Ltd., (“Basilea”), which we entered into in December 2024.

We continue to advance our pipeline, zoliflodacin, a potentially first-in-class, single-dose oral treatment for uncomplicated gonorrhea.

In June 2025, the U.S.

Food and Drug Administration (“FDA”) accepted the new drug application (“NDA”) for zoliflodacin, which has received Qualified Infectious Disease Product designation (“QIDP”), granting it priority review and the potential for extended market exclusivity.

We have established a wholly owned critical care and infectious disease operating platform, anchored by four differentiated commercial products and supported by a promising late-stage development asset.

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We continue to diversify our royalty management business through actively pursuing opportunistic acquisitions of promising companies and assets in the healthcare industry and enhancing the returns on our capital.

First Quarter 2025 and Recent Highlights:

Second Quarter 2025 and Recent Highlights:

Financial Highlights

• Royalty revenue:

First quarter 2025 gross royalty revenue from GSK was $61.3 million, compared to $61.9 million for the first quarter of 2024.

Second quarter 2025 gross royalty revenue from GSK was $67.3 million, compared to $67.2 million for the second quarter 2024.

• Net product sales:

First quarter 2025 net product sales totaled $30.3 million, consisting of $26.4 million in U.S.

net product sales and $3.9 million in ex-US net product sales, compared to $19.1 million in net product sales for the first quarter of 2024.

net product sales included $17.3 million from GIAPREZA ® , $5.8 million from XACDURO ® , and $3.2 million from XERAVA ® , representing a 52% increase compared to total U.S.

net product sales of $17.4 million in the first quarter of 2024.

Second quarter 2025 net product sales totaled $35.5 million, consisting of $29.0 million in U.S.

net product sales and $6.5 million in ex-U.S.

net product sales, compared to $21.7 million in net product sales for the second quarter 2024.

net product sales included $17.0 million from GIAPREZA ® , $8.5 million from XACDURO ® , $3.1 million from XERAVA ® , and $0.3 million from ZEVTERA ® , representing a 54% increase compared to total U.S.

net product sales of $18.8 million in the second quarter 2024.

• Income from operations:

First quarter 2025 income from operation was $41.4 million, an increase of 61% from $25.8 million in the first quarter of 2024.

Second quarter 2025 income from operations was $48.8 million, a decrease of 11% from $54.7 million in the second quarter 2024, primarily due to a non-recurring milestone payment and cost-sharing reimbursement from our partner in 2024, as well as increased research and development costs for zoliflodacin in preparation for potential FDA approval in 2025.

• Equity and long-term investments:

First quarter 2025 unfavorable changes in fair values of equity and long-term investments totaled $78.8 million, compared to favorable changes of $22.0 million in the first quarter of 2024, primarily due to the share price depreciation of Armata and certain equity investments managed by ISP Fund LP.

Second quarter 2025 net favorable changes in fair values of equity and long-term investments totaled $24.4 million, compared to unfavorable changes of $90.7 million in the second quarter 2024, were primarily due to share price appreciation of Armata and other equity investments.

• Net income:

First quarter 2025 net loss was $46.6 million, or ($0.74) basic per share, compared to net income of $36.5 million, or $0.58 basic per share, for the first quarter of 2024.

Second quarter 2025 net income was $63.7 million, or $1.01 basic per share, compared to a net loss of $34.7 million, or ($0.55) basic per share, for the second quarter 2024.

• Cash and cash equivalents:

Totaled $397.5 million.

Royalty and net product sales receivables totaled $77.9 million as of March 31, 2025.

Royalty and net product sales receivables totaled $88.3 million as of June 30, 2025.

Key Business and R&D Highlights

• Zoliflodacin:

a potential first-in-class, single dose, oral antibiotic is currently being developed together with The Global Antibiotic Research & Development Partnership (“GARDP”) for the treatment of patients with uncomplicated gonorrhea.

• Zoliflodacin NDA on track for filing with the U.S.

FDA in the first half of 2025.

• ZEVTERA ® (ceftibiprole):

an advanced-generation cephalosporin antibiotic that is approved in the U.S.

for three specific treatment indications.

ZEVTERA ® is the only FDA-approved methicillin-resistant Staphylococcus aureus (MRSA) cephalosporin antibiotic for treating adult patients with Staphylococcus aureus bloodstream infections (bacteremia) (SAB)

and endocarditis.

ZEVTERA ® is indicated for the treatment of adult patients with SAB, including right-sided infective endocarditis, adult patients with acute bacterial skin and skin structure infections (ABSSSI) and for adult and pediatric patients (3 months to less than 18 years old) with community-acquired bacterial pneumonia (CABP).

• Following the exclusive distribution and license agreement with Basilea, Innoviva anticipates launching ZEVTERA ® in the U.S.

• XACDURO ® (sulbactam for injection;

durlobactam for injection), co-packaged for intravenous use:

a targeted antibacterial treatment for patients with hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP) caused by susceptible isolates of Acinetobacter baumannii-calcoaceticus complex.

• In April, the Company presented in vivo and in vitro data on activity of durlobactam against Enterobacterales at the Congress of the European Society of Clinical Microbiology and Infectious Diseases (ESCMID Global).

an advanced-generation cephalosporin antibiotic approved in the U.S.

for three specific indications – Staphylococcus aureus bloodstream infections (bacteremia) (SAB) in adults, including right-sided infective endocarditis, acute bacterial skin and skin structure infections (ABSSSI) in adults, and community-acquired bacterial pneumonia (CABP) in adults and pediatric patients (3 months to less than 18 years old).

o IST commercially launched ZEVTERA ® in the U.S.

in July 2025.

• Zoliflodacin:

an investigational, first-in-class, single oral dose, spiropyrimidinetrione antibiotic for the treatment of uncomplicated gonorrhea in adults and pediatric patients 12 years and older.

It is being developed in partnership with The Global Antibiotic Research & Development Partnership (“GARDP”).

o In June 2025, the FDA accepted the zoliflodacin NDA, granted Priority Review and assigned a PDUFA target action date of December 15, 2025.

o Subsequent to the NDA acceptance, the FDA indicated in its Day-74 letter that it did not plan to hold an Advisory Committee meeting to discuss the zoliflodacin NDA.

• Update on Strategic Healthcare Assets

• Innoviva’s portfolio of strategic assets held through the Company’s various subsidiaries was valued at $457.6 million as of March 31, 2025.

In the first quarter of 2025, we invested a total of $34.7 million in various strategic healthcare assets, including $15.0 million in a convertible note of Gate Neurosciences and $10.0 million in a term loan to Armata.

o Innoviva’s portfolio of strategic assets held through the Company’s various subsidiaries was valued at $449.3 million as of June 30, 2025.

Collaboration Arrangement with GSK

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Total royalty revenue, net, decreased marginally to $57.8 million for the three months ended March 31, 2025, compared to $58.4 million for the same period a year ago.

Total royalty revenue, net, remained relatively consistent for the three and six months ended June 30, 2025, compared to the same periods a year ago.

Net Product Sales

Total product sales, net, as compared to prior year period, was as follows:

Three months ended March 31,

Total product sales, net, as compared to prior year period, were as follows:

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Our net product sales increased during the periods presented, driven by higher sales volume resulting from our strategic commercialization efforts and dedications to delivering our critical care products to healthcare systems.

Our net product sales increased during the periods presented, driven by higher sales volume resulting from our strategic commercialization efforts and dedication to delivering our critical care products to healthcare systems.

License Revenue

License revenue for the three and six months ended June 30, 2025, which was derived primarily from the Amended Zai Agreement and Zai Manufacturing Stage Transfer Agreement, totaled $0.9 million and $1.5 million, respectively.

In the second quarter of 2024, we recognized $8.0 million in license revenue upon the achievement of a regulatory milestone in China under our license agreement with Zai Lab, and $6.5 million in license revenue under the Amended Zai Agreement.

Cost of Products Sold

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Our inventory includes net fair value adjustments resulting from the acquisition of La Jolla, which are being amortized and recognized as cost of products sold when sales occur.

The fair value adjustments recorded as part of cost of products sold amounted to $0.2 million and $6.8 million for the three months ended March 31, 2025 and 2024, respectively.

Excluding the impact of the amortized fair value adjustments, our cost of products sold increased during the three months ended March 31, 2025 compared to the same period in 2024 as a result of higher sales volume.

As of March 31, 2025, our total inventory included the remaining net fair value adjustments resulting from the acquisition of La Jolla of approximately $8.9 million, 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 $0.4 million and $0.6 million for the three and six months ended June 30, 2025, respectively, and $3.5 million and $10.3 million for the three and six months ended June 30, 2024, respectively.

Excluding the impact of the amortized fair value adjustments, our cost of products sold increased during the three and six months ended June 30, 2025 compared to the same periods in 2024 as a result of higher sales volume.

As of June 30, 2025, our total inventory included the remaining net fair value adjustments resulting from the acquisition of La Jolla of approximately $8.5 million, which will be recognized as cost of products sold when sales occur in future periods.

Research and Development

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Research and development

Research and development expenses consist of the following:

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Compensation and related personnel costs

External services

External services and expenses

Facilities related

Total research and development expense

Research and development expenses, which are mainly attributable to post-marketing commitments required by the FDA and ongoing product developments, were $4.4 million and $3.9 million for the three months ended March 31, 2025 and 2024, respectively.

The increase was primarily due to further advancement of our product candidate, zoliflodacin.

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Research and development expenses for the three and six months ended June 30, 2025, which consisted primarily of the continued advancement of our product candidate, zoliflodacin, were $8.0 million and $12.4 million, respectively.

Research and development expenses for the three and six months ended June 30, 2024, which were mainly attributable to post-marketing commitments required by the FDA and ongoing product developments, were $2.6 million and $6.4 million, respectively.

Selling, General & Administrative

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Our selling, general and administrative expenses are primarily incurred as a result of our ongoing efforts to promote our marketed critical care products and drive revenue, maintain regulatory compliance, and support essential administrative functions for general operations.

Selling, general and administrative expenses were higher for the three months ended March 31, 2024 compared to the same period in 2025 due to heightened efforts associated with the then commercial launch of XACDURO ® .

Selling, general and administrative expenses decreased for the three and six months ended June 30, 2025, compared to the corresponding periods in 2024, during which incremental efforts and expenditures were associated with the commercial launch of XACDURO ® .

Interest and Dividend Income and Other Expense, Net

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Other expense, net

Interest and dividend income increased marginally for the three months ended March 31, 2025, compared to the same period in 2024, due to higher interest rates and higher average balances of our cash equivalents, money market funds and other interest-bearing investments.

Interest and dividend income increased for the three and six months ended June 30, 2025, compared to the same periods in 2024, due to higher average balances of our cash equivalents, money market funds and other interest-bearing investments.

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

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Interest expense

Interest expense for the three months ended March 31, 2025 and 2024 comprised mainly of the contractual interest expense and the amortization of debt issuance costs for our 2025 Notes and 2028 Notes, as well as effective interest expense on our deferred royalty obligation related to GIAPREZA ® .

The decrease for the three months ended March 31, 2025, compared to the same period in 2024, was mainly due to lower interest expense on our deferred royalty obligation as a result of higher sales performance of GIAPREZA ® .

Our interest expense for the three and six months ended June 30, 2025 and 2024 comprised mainly of the contractual interest expense and the amortization of debt issuance costs for our 2025 Notes and 2028 Notes, as well as effective interest expense on our deferred royalty obligation related to GIAPREZA ® .

The decrease for the three and six months ended June 30, 2025, compared to the same period in 2024, was mainly due to lower interest expense on our deferred royalty obligation as a result of higher sales performance of GIAPREZA ® .

Changes in Fair Values of Equity Method Investments and Equity and Long-Term Investments

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and long-term investments, net

The changes in fair values of equity method investments for the three months ended March 31, 2025 were unfavorable mainly due to the decrease in Armata's stock price during this period.

We recorded $13.5 million in unrealized losses and $35.3 million in unrealized gains for the three months ended March 31, 2025 and 2024, respectively, related to our equity method investments in Armata.

The changes in fair values of equity method investments for the three and six months ended June 30, 2025 were driven by fluctuations in Armata's stock price between the reporting periods.

We recorded $13.1 million in unrealized gain and $0.5 million in unrealized loss for the three and six months ended June 30, 2025, respectively, compared to $60.1 million and $24.8 million in unrealized loss for the three and six months ended June 30, 2024, respectively.

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

We recorded $83.7 million of net negative changes in fair values of equity and long-term investments related to the investments managed by ISP Fund LP for the three months ended March 31, 2025.

We also recorded $3.3 million net negative changes in fair values of equity and long-term investments for the three months ended March 31, 2025 related to other long-term investments we made in Armata.

These net negative changes in fair values were partially offset by a favorable net change in fair value of our investments in Gate of $19.3 million.

We recorded $0.3 million in net positive changes and $83.4 million in net negative changes in fair values of equity and long-term investments related to the investments managed by ISP Fund LP for the three and six months ended June 30, 2025, respectively.

We also recorded $9.0 million and $5.7 million net positive changes in fair values of equity and long-term investments for the three and six months ended June 30, 2025, respectively, related to other long-term investments we made in Armata, and net positive changes in fair value of our investments in Syndeio of $1.8 million and $21.1 million for the three and six months ended June 30, 2025, respectively.

Provision for Income Taxes

We recorded income tax expense of $8.0 million and $8.6 million for the three months ended March 31, 2025 and 2024, respectively.

The effective income tax rate for the three months ended March 31, 2025 and 2024 was (20.7)% and 19.0%, respectively.

Our effective tax rate for the three months ended March 31, 2025, was negative, primarily due to a year-to-date tax expense on a year-to-date pretax loss, driven by the valuation allowance recorded on unrealized losses related to certain non-controlled investments.

We recorded income tax expense of $8.9 million and $16.9 million for the three and six months ended June 30, 2025, respectively, compared to an income tax benefit of $4.6 million and an income tax expense of $4.0 million for the three and six months ended June 30, 2024.

The effective income tax rate for the six months ended June 30, 2025 and 2024 was 49.7% and 68.4%, respectively.

Liquidity and Capital Resources

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

For the three months ended March 31, 2025, we generated gross royalty revenues from GSK of $61.3 million, net product sales of $30.3 million and license revenue of $0.5 million.

Net cash and cash equivalents totaled $319.1 million, royalties receivable from GSK totaled $61.3 million and accounts receivable associated with our product sales and license revenue totaled $16.7 million as of March 31, 2025.

For the six months ended June 30, 2025, we generated gross royalty revenues from GSK of $128.6 million, net product sales of $65.8 million and license revenue of $1.5 million.

Net cash and cash equivalents totaled $397.5 million, royalties receivable from GSK totaled $67.3 million and accounts receivable associated with our product sales and license revenue totaled $20.9 million as of June 30, 2025.

Adequacy of Cash Resources to Meet Future Needs

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Furthermore, if in our view favorable financing opportunities arise, we may seek additional funding in the form of public or private equity offerings or debt financings at any time.

However, future financing may not be available in amounts or on terms acceptable to us, if at all.

However, future financing may not

be available in amounts or on terms acceptable to us, if at all.

This could leave us without adequate financial resources to fund our operations as currently planned.

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

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Cash Flows from Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2025 was $48.6 million, consisting primarily of our net loss of $46.6 million, adjusted for net non-cash items, which included $78.8 million in changes in fair value of our investments, $6.5 million of amortization of acquired intangible assets, $3.5 million of amortization of capitalized fees, $2.1 million of stock-based compensation, $1.2 million in allowance for inventory write-down and $2.9 million in net changes in operating assets and liabilities.

Net cash provided by operating activities for the three months ended March 31, 2024 was $37.0 million, consisting primarily of our net income of $36.5 million, adjusted for net non-cash items, which included $6.8 million of amortization of inventory fair value step-up adjustment, $6.4 million of amortization of acquired intangible assets, $3.5 million of amortization of capitalized fees and depreciation of property and equipment, $3.2 million of deferred income taxes, partially offset by $22.0 million of net changes in fair value of our investments and $2.0 million net changes in operating assets and liabilities.

Net cash provided by operating activities for the six months ended June 30, 2025 was $92.7 million, consisting primarily of our net income of $17.1 million, adjusted for net non-cash items, which included $54.5 million in changes in fair value of our investments, $13.0 million of amortization of acquired intangible assets, $7.0 million of amortization of capitalized fees and depreciation of property and equipment, $4.6 million of stock-based compensation and $1.1 million in amortization of debt discount and issuance costs, partially offset by $4.7 million in net changes in operating assets and liabilities.

Net cash provided by operating activities for the six months ended June 30, 2024 was $80.8 million, consisting primarily of our net income of $1.8 million, adjusted for net non-cash items, which included $68.7 million in changes in fair value of our investments, $12.9 million of amortization of acquired intangible assets, $10.3 million of amortization of inventory fair value step-up adjustment, $7.0 million of amortization of capitalized fees and depreciation of property and equipment, partially offset by $12.0 million of deferred income taxes and $11.9 million in net changes in operating assets and liabilities.

Cash Flows from Investing Activities

Net cash used in investing activities for the three months ended March 31, 2025 of $34.7 million primarily consisted of $34.7 million in purchases of trading securities and $19.9 million in net purchases of other investments managed by ISP Fund LP.

The use of cash for investing activities was partially offset by proceeds of $19.9 million from the sales of equity investments managed by ISP Fund LP.

Net cash used in investing activities for the three months ended March 31, 2024 of $43.0 million primarily consisted of $43.1 million in purchases of trading securities and $8.8 million in purchases of equity and long-term investments managed by ISP Fund LP.

The use of cash for investing activities was partially offset by net proceeds of $5.3 million from the sales of equity investments managed by ISP Fund LP and $3.4 million from the sale of other investments managed by ISP Fund LP.

Net cash used in investing activities for the six months ended June 30, 2025 of $1.6 million primarily consisted of $34.7 million in purchases of trading securities, partially offset by $28.0 million in sales of equity investments and net purchases and sales of other investments managed by ISP Fund LP and $5.1 million in proceeds from trading securities.

Net cash used in investing activities for the six months ended June 30, 2024 of $43.0 million primarily consisted of $43.1 million in purchases of trading securities and $30.9 million in purchases of equity and long-term investments managed by ISP Fund LP.

The use of cash for investing activities was partially offset by proceeds of $24.9 million from net sales of other investments managed by ISP Fund LP and $6.0 million from the sales of equity investments managed by ISP Fund LP.

Cash Flows from Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2025 of $0.2 million was primarily due to net proceeds from issuances of common stock, partially offset by the repurchase of shares to satisfy tax withholding.

Net cash used in financing activities for the three months ended March 31, 2024 of $9.2 million was primarily due to $9.6 million for the repurchase of common stock under our current stock repurchase program.

Net cash provided by financing activities for the six months ended June 30, 2025 of $1.4 million was primarily due to net proceeds from issuances of common stock, partially offset by the repurchase of shares to satisfy tax withholding.

Net cash used in financing activities for the six months ended June 30, 2024 of $14.2 million was primarily due to $14.8 million for the repurchase of common stock under our stock repurchase program which concluded in April 2024.

Contractual Obligations

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

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

As of June 30, 2025, our notes payable obligation included $192.0 million related to our 2025 Notes and $261.0 million related to our 2028 Notes, which are due in 2025 and 2028, respectively.

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

Refer to Note 11, “Debt” to the Condensed Consolidated Financial Statements for more information.

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

As of March 31, 2025, we have approximately $20.9 million in outstanding purchase commitments under the agreement.

As of June 30, 2025, we have approximately $19.7 million in outstanding purchase commitments under the agreement.

We also enter into other agreements in the normal course of business with vendors for commercial, manufacturing, clinical trials and preclinical studies, and other services and products for operating purposes.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis