What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-05 compared with 2025-08-06 · 100 added, 59 removed, 172 unchanged (48% of the section changed)

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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.

Second Quarter 2025 and Recent Highlights:

Third Quarter 2025 and Recent Highlights:

Financial Highlights

• Royalty revenue:

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

Third quarter 2025 gross royalty revenue from GSK was $63.4 million, compared to $60.5 million for the third quarter 2024.

• Net product sales:

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

Third quarter 2025 net product sales totaled $47.3 million, consisting of $29.9 million in U.S.

net product sales and $17.4 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, compared to $27.8 million in net product sales for the third quarter 2024.

net product sales included $18.2 million from GIAPREZA®, $8.5 million from XACDURO®, $3.2 million from XERAVA®, and $0.1 million from ZEVTERA®, representing a 52% increase compared to total U.S.

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

net product sales of $19.7 million in the third quarter 2024.

• Income from operations:

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.

Third quarter 2025 income from operations was $34.6 million, a 20% decrease from $43.2 million in the third quarter 2024, primarily due to a non-recurring expense related to research and development.

• Equity and long-term investments:

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.

Third quarter 2025 net favorable changes in fair values of equity and long-term investments totaled $62.3 million, compared to unfavorable changes of $35.2 million in the third quarter 2024, were primarily due to share price appreciation of Armata and other equity investments.

• Net income:

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.

Third quarter 2025 net income was $89.9 million, or $1.30 basic per share, compared to a net income of $1.2 million, or $0.02 basic per share, for the third quarter 2024.

• Cash and cash equivalents:

Totaled $476.5 million.

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

Royalty and net product sales receivables totaled $93.5 million as of September 30, 2025.

Key Business and R&D Highlights

• ZEVTERA ® (ceftibiprole):

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:

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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

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.

o In October 2025, IST, in collaboration GARDP, presented three sets of data highlighting key subgroup analyses from the pivotal Phase 3 trial for zoliflodacin at the Infectious Disease Society of America’s IDWeek 2025 annual meeting.

o Zoliflodacin is currently under Priority Review by the FDA, with a Prescription Drug User Fee Act (“PDUFA”) target action date of December 15, 2025.

• Subsequent to the NDA acceptance in June 2025, the FDA indicated in its Day-74 letter that it did not plan to hold an Advisory Committee meeting to discuss the zoliflodacin NDA.

• ZEVTERA®(ceftobiprole):

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

o In July 2025, IST commercially launched ZEVTERA ® in the U.S.

Initial launch activity has been focused on formulary committee engagement and market access programs.

• Both ZEVTERA® (ceftobiprole) and XACDURO® (sulbactam for injection;

durlobactam for injection) were recently nominated for the 2025 Prix Galien USA Award for Best Pharmaceutical Product by the Galien Foundation, one of the most prestigious honors in the biopharmaceutical and medical technology fields, celebrating groundbreaking achievements that drive meaningful progress.

• Capital Allocation

o Innoviva’s portfolio of strategic assets held through the Company’s various subsidiaries was valued at $483.0 million as of September 30, 2025.

o Innoviva’s Board of Directors has authorized a new share repurchase program under which the Company may repurchase up to $125.0 million of its outstanding shares of common stock.

The timing and amount of any share repurchases under the share repurchase program will be subject to the Securities and Exchange Commission Rule 10b-18 and Rule 10b5-1 requirements andwill be determined by Innoviva’s management in its discretion based on ongoing assessments of the capital needs of the business, the market price of Innoviva’s common stock, prevailing stock prices, general market conditions and other considerations.

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

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

o In August 2025, a substantial portion of the Company’s 2025 convertible noteholders elected to convert an aggregate principal balance of $192.5 million into 11.1 million shares of Innoviva common stock prior to maturity.

o In August 2025, Innoviva invested $15.0 million in a term loan to Armata, which recently announced positive Phase 2 data in Staphylococcus aureus bacteremia.

o In September 2025, Innoviva acquired a proprietary long-acting oral drug delivery platform and related assets from Lyndra Therapeutics, Inc.

The transaction included an upfront payment of $10.2 million, plus potential milestone and royalty payments.

o In October 2025, Innoviva invested $17.5 million in the Series B Preferred Stock of Beacon Biosignals, Inc., an AI-driven neurotechnology company developing treatments for neurological, psychiatric, and sleep disorders.

Collaboration Arrangement with GSK

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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.

Total net royalty revenue increased to $59.9 million and $181.6 million for the three and nine months ended September 30, 2025, compared to $57.1 million and $179.2 million, respectively, for the same period a year ago.

The increase of total net royalty revenue was primarily due to sales growth in RELVAR ® /BREO ® ELLIPTA ® .

Net Product Sales

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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 dedication to delivering our critical care products to healthcare systems.

The increase in XACDURO ® ex-U.S.

product sales is attributable mainly to product sales under the Amended Zai Agreement, which is billed at cost.

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.

License revenue, as compared to the prior year period, was as follows:

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License and other revenue

License revenue for the three and nine months ended September 30, 2025 was derived primarily from the Amended Zai Agreement and the Zai Manufacturing Stage Transfer Agreement.

During the third quarter of 2024, we recognized license revenue of approximately $4.6 million arising from the Amended Zai Agreement and the Zai Manufacturing Stage Transfer Agreement.

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.

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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 $0.4 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.

The fair value adjustments recorded as part of cost of products sold amounted to $3.5 million and $4.1 million for the three and nine months ended September 30, 2025, respectively, and $1.8 million and $12.1 million for the three and nine months ended September 30, 2024, respectively.

Excluding the impact of the amortized fair value adjustments, our cost of products sold increased during the three and nine months ended September 30, 2025 compared to the same periods in 2024 as a result of higher sales volume, as well as cost of products sold under the Amended Zai Agreement.

As of September 30, 2025, our total inventory included the remaining net fair value adjustments resulting from the acquisition of La Jolla of approximately $5.0 million, which will be recognized as cost of products sold when sales occur in future periods.

Research and Development

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External services and expenses

Acquired IPR&D

Facilities related

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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.

Research and development expenses for the three and nine months ended September 30, 2025 were $13.7 million and $26.0 million, respectively.

The expenses for the current periods include the $9.4 million allocated cost of the acquired IPR&D as discussed in Note 13, “Asset Acquisition”, in the Condensed Consolidated Financial Statements.

During the current year, we also incurred costs related to the continued advancement of our product candidate, zoliflodacin.

Research and development expenses for the three and nine months ended September 30, 2024, which were mainly attributable to post-marketing commitments required by the FDA and ongoing product developments, were $3.6 million and $10.0 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 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 ® .

Selling, general and administrative expenses decreased for the nine months ended September 30, 2025 compared to the corresponding period in 2024, during which incremental efforts and expenditures were associated with the commercial launch of XACDURO ® in September 2023.

Interest and Dividend Income and Other Expense, Net

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Other expense, net

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.

Interest and dividend income increased for the nine months ended September 30, 2025, compared to the same period 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

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 ® .

Our interest expense for the three and nine months ended September 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 nine months ended September 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 ® , as well as the settlement of our 2025 Notes in August 2025.

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 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 equity method investments for the three and nine months ended September 30, 2025 were driven by fluctuations in Armata's stock price between the reporting periods.

We recorded $30.8 million and $30.3 million in unrealized gain for the three and nine months ended September 30, 2025, respectively, compared to $18.2 million and $43.0 million in unrealized loss for the three and nine months ended September 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 $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.

We recorded $11.7 million in net positive changes and $69.2 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 nine months ended September 30, 2025, respectively.

We also recorded $16.3 million and $22.0 million net positive changes in fair values of equity and long-term investments for the three and nine months ended September 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 $5.7 million and $26.8 million for the three and nine months ended September 30, 2025, respectively.

Provision for Income Taxes

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.

We recorded income tax expense of $7.9 million and $24.8 million for the three and nine months ended September 30, 2025, respectively, compared to income tax expense of $5.6 million and $9.6 million for the three and nine months ended September 30, 2024, respectively.

The effective income tax rate for the nine months ended September 30, 2025 and 2024 was 18.8% and 40.5%, 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 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.

For the nine months ended September 30, 2025, we generated gross royalty revenues from GSK of $192.0 million, net product sales of $113.1 million and license revenue of $2.1 million.

Net cash and cash equivalents totaled $476.5 million, royalties receivable from GSK totaled $63.4 million and accounts receivable associated with our product sales and license revenue totaled $30.2 million as of September 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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Nine Months Ended September 30,

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Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Cash Flows from Operating Activities

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.

Net cash provided by operating activities for the nine months ended September 30, 2025 was $142.4 million, consisting primarily of our net income of $107.0 million, adjusted for net non-cash items, which included $19.6 million of amortization of acquired intangible assets, $10.5 million of amortization of capitalized fees and depreciation of property and equipment, $9.4 million of acquired IPR&D, $6.9 million of stock-based compensation, $4.1 million of inventory fair value step-up adjustments and $1.5 million in amortization of debt discount and issuance costs, partially offset by $7.8 million in net changes in fair value of our investments and $13.4 million in net changes in operating assets and liabilities.

Net cash provided by operating activities for the nine months ended September 30, 2024 was $129.5 million, consisting primarily of our net income of $3.1 million, adjusted for net non-cash items, which included $103.8 million in changes in fair value of our investments, $19.4 million of amortization of acquired intangible assets, $12.1 million of amortization of inventory fair value step-up adjustment, $10.5 million of amortization of capitalized fees and depreciation of property and equipment, and $4.7 million of stock-based compensation, partially offset by $15.4 million of deferred income taxes and $9.9 million in net changes in operating assets and liabilities.

Cash Flows from Investing Activities

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.

Net cash provided by investing activities for the nine months ended September 30, 2025 of $16.9 million primarily consisted of $71.9 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, partially offset by $49.7 million in purchases of trading securities, $9.4 million in cash paid for acquired IPR&D and $1.1 million purchases of property and equipment.

Net cash used in investing activities for the nine months ended September 30, 2024 of $48.3 million primarily consisted of $48.1 million in purchases of trading securities, $32.3 million in purchases of equity and long-term investments managed by ISP Fund LP and $20.6 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 $52.8 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 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.

Net cash provided by financing activities for the nine months ended September 30, 2025 of $12.3 million was primarily due to proceeds from exercise of warrants of $10.7 million and net proceeds from issuances of common stock of $1.7 million.

Net cash used in financing activities for the nine months ended September 30, 2024 of $14.0 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 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.

As of September 30, 2025, our notes payable obligation comprised of $261.0 million related to our 2028 Notes, which is due in 2028.

Under the terms of the 2028 Notes, we make interest payments of 2.125% 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 June 30, 2025, we have approximately $19.7 million in outstanding purchase commitments under the agreement.

As of September 30, 2025, we have approximately $14.6 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