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Item 7. Management’s Discussion and Analysis

2026-02-25 compared with 2025-02-26 · 130 added, 185 removed, 214 unchanged (60% of the section changed)

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Innoviva, Inc.

(and where context requires, together with its subsidiaries referred to as “Innoviva”, the “Company”, the “Registrant” 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).

We sold our 15% ownership interest in Theravance Respiratory Company, LLC (“TRC”) on July 20, 2022, and are no longer entitled to receive royalties on sales of TRELEGY ® ELLIPTA ® products.

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

Under the Long-Acting Beta2 Agonist (“LABA”) Collaboration Agreement, Innoviva is entitled to receive royalties from GSK on sales of RELVAR ® /BREO ® ELLIPTA ® as follows:

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and royalties from the sales of ANORO ® ELLIPTA ® , which tier upward at a range from 6.5% to 10%.

We expanded our portfolio through the acquisition of Entasis Therapeutics Holdings Inc.

(“Entasis”) on July 11, 2022 and the acquisition of La Jolla Pharmaceutical Company (“La Jolla”) on August 22, 2022.

Following the acquisitions, 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) approved for the treatment of complicated intra-abdominal infections in adults.

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

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

On December 14, 2024, we entered into an exclusive distribution and license agreement with Basilea Pharmaceutica Ltd, Allschwil (SIX:

BSLN) (“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 U.S.

FDA in early 2025.

As such, we have a wholly owned robust critical care and infectious disease operating platform with 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 (“Armata”), a leader in development of bacteriophage with potential use across a range of infectious and other serious diseases.

We also have economic interests in other healthcare companies.

Our focus on capital allocation and shareholder value maximization has led our company to a meaningful transformation over the last two years.

In 2022 our financials contained royalty revenues from TRELEGY ® ELLIPTA ® which was divested mid-year in an economically accretive transaction.

Additionally, our acquisition and integration of operating companies and advancement of our therapeutics portfolio further changed the structure of our financials compared to prior years.

Through these changes, we believe we are well-positioned to create significant long-term shareholder value.

Our wholly owned, robust critical care and infectious disease operating platform with a hospital focus, is anchored by five differentiated approved, commercial and marketed products:

• GIAPREZA ® (angiotensin II) for increasing blood pressure in adults with septic or other distributive shock;

• XACDURO ® (sulbactam for injection;

durlobactam for injection), co-packaged for intravenous use for the treatment of hospital-acquired and ventilator-associated bacterial pneumonia caused by Acinetobacter , commercially launched in 2023 ;

• XERAVA ® (eravacycline) for the treatment of complicated intra-abdominal infections in adults;

• ZEVTERA ® (ceftobiprole), an advanced-generation cephalosporin antibiotic for the treatment of staphylococcus aureus bacteremia , including those with right-sided endocarditis, acute bacterial skin and skin structure infections, and community-acquired bacterial pneumonia, licensed from Basilea Pharmaceutica Ltd, Allschwil (SIX:

BSLN) (“Basilea”) for U.S.

commercialization and commercially launched in the third quarter of 2025;

• NUZOLVENCE ® (formerly known as zoliflodacin), approved by the FDA on December 12, 2025, for the treatment of uncomplicated urogenital gonorrhea in adults and adolescents

In addition, we own other strategic healthcare assets, such as a significant stake in Armata Pharmaceuticals, Inc.

(“Armata”), a leader in development of bacteriophages with potential use across a range of infectious and other serious diseases.

We also have economic interests in other healthcare companies through our portfolio approach.

Our disciplined focus on deploying capital in areas of significant unmet medical need with high value creation potential has driven a meaningful transformation of our company over the years from a pure-play royalty business to a diversified biopharmaceutical company with a strong, fast-growing, differentiated operating platform and multiple other assets with significant promise.

We believe we are well-positioned to deliver significant long-term shareholder value.

Our company structure and organization are tailored to our focused activities of managing our respiratory assets partnered with GSK, commercializing our marketed products, developing our product candidates, optimizing capital allocation, and providing for certain essential reporting and management functions of a public company.

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Financial Highlights

• Total revenue:

Total revenue for the fourth quarter 2025 was $114.6 million, representing 25% growth compared to total revenue of $91.8 million for the fourth quarter 2024.

Total revenue for the full year 2025 was $411.3 million, reflecting 15% growth compared to total revenue of $358.7 million for the full year 2024.

• Royalty revenue:

Fourth quarter 2024 gross royalty revenue from GSK was $66.0 million and full year was $255.6 million, compared to $69.6 million for the fourth quarter of 2023 and $252.7 million for the full year 2023.

Fourth quarter 2025 gross royalty revenue from GSK was $58.4 million and full year was $250.3 million, compared to $66.0 million for the fourth quarter 2024 and $255.6 million for the full year 2024.

• Net product sales:

Fourth quarter 2024 net product sales were $28.9 million, which included U.S.

net product sales of $24.9 million, compared to $19.7 million for the fourth quarter of 2023, and ex-U.S.

net product sales of $4.0 million.

net product sales consisted of $15.9 million from GIAPREZA ® , $3.1 million from XERAVA ® , and $5.9 million from XACDURO ® .

Full year 2024 net product sales were $97.5 million, which included U.S.

net product sales of $80.9 million, compared to $55.1 million for full year 2023, and ex-U.S.

net product sales of $16.6 million.

net product sales consisted of $53.4 million from GIAPREZA ® , $12.8 million from XERAVA ® , and $14.7 million from XACDURO ® .

• License revenue:

Fourth quarter 2024 license revenue of $0.4 million included product development cost-sharing reimbursements from our partner.

Full year 2024 license revenue of $19.5 million consisted of an $8.0 million milestone payment and $11.5 million cost-sharing reimbursements, compared to $11.0 million milestone payments in full year 2023.

Fourth quarter 2025 net product sales were $59.1 million, more than doubling from $28.9 million in the same quarter of 2024.

Full year 2025 net product sales were $172.1 million, an increase of 77% compared to $97.5 million for the full year 2024.

o For the fourth quarter 2025, U.S.

net product sales were $33.9 million and ex-U.S.

net product sales were $25.1 million.

Fourth quarter 2025 U.S.

net product sales primarily consisted of $19.3 million from GIAPREZA ® , $10.7 million from XACDURO ® , and $3.8 million from XERAVA ® .

o For the full year 2025, U.S.

net product sales were $119.2 million and ex-U.S.

net product sales were $52.9 million.

Full year 2025 U.S.

net product sales primarily consisted of $71.8 million from GIAPREZA ® , $33.4 million from XACDURO ® , and $13.3 million from XERAVA ® .

• Income from operations:

Fourth quarter 2025 income from operations was $39.0 million, compared to $43.1 million for the fourth quarter 2024.

Full year 2025 income from operations was $163.7 million, compared to $166.9 million for the full year 2024, reflecting continued investments in research and development.

• Equity and long-term investments:

Fourth quarter and full year 2024 changes in fair values of equity and long-term investments of $19.6 million and $123.4 million, respectively, were primarily attributable to share price depreciation of Armata and other equity investments.

Fourth quarter and full year 2025 net favorable changes in fair values of equity and long-term investments totaled $153.8 million and $161.6 million, respectively, and were primarily attributable to share price appreciation of Armata.

Innoviva’s portfolio of strategic assets held through the Company’s various subsidiaries was valued at $614.0 million as of December 31, 2025, and consisted of $397.9 million in Armata investments, $136.4 million in other strategic equity and convertible debt investments, and $79.7 million in investments held by ISP Fund.

• Net income:

Fourth quarter 2024 net income of $20.3 million ($0.32 basic net income per share) and full year 2024 net income of $23.4 million ($0.37 basic net income per share) were driven primarily by higher revenue, offset by the negative impact of changes in the fair values of equity investments.

Fourth quarter 2025 net income of $164.2 million ($2.19 basic earnings per share) and full year 2025 net income of $271.2 million ($4.02 basic earnings per share) were driven primarily by higher revenue and the positive impact of changes in the fair values of equity and long-term investments.

• Cash and cash equivalents:

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Key Business and R&D Highlights

• ZEVTERA ® (ceftobiprole):

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).

o In the fourth quarter of 2024, Innoviva licensed U.S.

commercialization and distribution rights to ZEVTERA ® from Basilea.

o The Company anticipates launching ZEVTERA ® in the U.S.

• Zoliflodacin:

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

o In 2024, the Company reported positive Phase 3 data for zoliflodacin, in which a single dose of oral zoliflodacin achieved a statistically non-inferior microbiological cure rate compared to the current global standard of care.

Oral zoliflodacin was generally well tolerated and emergent adverse events were comparable between treatment arms.

No deaths or other serious adverse events were reported.

o The Company remains on track to submit the zoliflodacin NDA to the FDA in early 2025.

• 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.

o XACDURO ® was approved in China by the National Medical Products Administration for use in Chinese patients 18 years of age and older in May 2024.

o In July, XACDURO ® was named as the preferred agent for the treatment of Carbapenem-resistant Acinetobacter baumannii infections, in combination with a carbapenem, in the updated 2024 IDSA treatment guidance.

o In August, XACDURO ® was nominated for the prestigious Prix Galien USA award for Best Biotechnology Product.

Update on Strategic Healthcare Assets

• Our portfolio of strategic assets under the Company’s various subsidiaries was valued at $501.5 million as of December 31, 2024.

In the fourth quarter 2024, we continued to support product developments and invested $10.9 million in Gate Neurosciences, Inc., a leader in developing precision medicines targeting synaptic health.

• NUZOLVENCE® (zoliflodacin):

a first-in-class, single-dose oral medication for the treatment of uncomplicated urogenital gonorrhea due to Neisseria gonorrhoeae in adults and pediatric patients 12 years and older weighing at least 35kg, developed in partnership with The Global Antibiotic Research & Development Partnership (“GARDP”).

o In December 2025, IST received FDA approval of NUZOLVENCE ® for the treatment of uncomplicated urogenital gonorrhea.

o FDA approval was based on results from the largest Phase 3 clinical trial ever conducted for a new treatment against Neisseria gonorrhoeae infection in regions with a high prevalence of gonorrhea across five countries.

o Additionally, in December 2025, the positive NUZOLVENCE ® Phase 3 data for the treatment of uncomplicated urogenital gonorrhea were published in The Lancet.

o The Company plans to commercialize NUZOLVENCE ® in the second half of 2026, either in collaboration with a commercialization partner or independently.

• In October 2025, IST delivered data from from six presentations at IDWeek 2025, including clinical data, pharmacokinetic/pharmacodynamic analyses, and microbiologic surveillance from its growing portfolio of antibiotics and critical care medicines.

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

durlobactam for injection) were 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 Since the inception of the share repurchase program, the Company has repurchased 797,298 shares for $16.0 million.

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.

Collaborative Arrangements with GSK

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In November 2002, we entered into the LABA Collaboration Agreement with GSK to develop and commercialize once-daily LABA products for the treatment of chronic obstructive pulmonary disorder (“COPD”) and asthma (the “LABA Collaboration Agreement”).

For the treatment of COPD, the collaboration has developed three combination products:

For the treatment of COPD, the collaboration has developed the following combination products:

• RELVAR ® //BREO ® ELLIPTA ® (“FF/VI”) (BREO ® ELLIPTA ® is the proprietary name in the U.S.

and Canada and RELVAR ® ELLIPTA ® is the proprietary name outside the U.S.

and Canada), a once‑daily combination medicine consisting of a LABA, vilanterol (VI), and an inhaled corticosteroid (“ICS”), fluticasone furoate (“FF”),

• ANORO ® ELLIPTA ® (“UMEC/VI”), a once‑daily medicine combining a long‑acting muscarinic antagonist (“LAMA”), umeclidinium bromide (“UMEC”), with a LABA, vilanterol (VI), and

• TRELEGY ® ELLIPTA ® (the combination FF/UMEC/VI), a once‑daily combination medicine consisting of an ICS, LAMA and LABA.

As a result of the launch and approval of RELVAR ® /BREO ® ELLIPTA ® and ANORO ® ELLIPTA ® in the U.S., Japan and Europe, in accordance with the LABA Collaboration Agreement, we paid approval and launch milestone payments to GSK totaling $220.0 million during the year ended December 31, 2014.

and Canada), a once-daily combination medicine consisting of a LABA, vilanterol (VI), and an inhaled corticosteroid (“ICS”), fluticasone furoate (“FF”), and

• ANORO ® ELLIPTA ® (“UMEC/VI”), a once-daily medicine combining a long-acting muscarinic antagonist (“LAMA”), umeclidinium bromide (“UMEC”), with a LABA, vilanterol (VI).

As a result of the launch and approval of RELVAR ® /BREO ® ELLIPTA ® and ANORO ® ELLIPTA ® in the U.S., Japan and Europe, in accordance with the LABA Collaboration Agreement, we paid milestone fees to GSK totaling $220.0 million during the year ended December 31, 2014.

Although we have no further milestone payment obligations to GSK pursuant to the LABA Collaboration Agreement, we continue to have ongoing commercialization activities under the LABA Collaboration Agreement, including participation in the joint steering committee that are expected to continue over the life of the agreement.

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On sales of ANORO ® ELLIPTA ® , royalties are upward tiering and range from 6.5% to 10%.

We no longer receive royalties on sales of TRELEGY ® ELLIPTA ® after we sold our royalty rights along with the sale of our ownership in TRC in July 2022.

As mentioned above, on July 20, 2022, we sold our ownership interest in TRC, which received royalty payments from GSK stemming from sales of TRELEGY ® ELLIPTA ® .

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

Strategic Partnership with Sarissa Capital

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The services are provided free of charge to us.

Sarissa Capital is considered to be a related party due to its investment in Innoviva’s common stock and its representation on our board of directors.

Sarissa Capital was considered to be a related party up until the annual stockholders meeting in May 2025 after which there were no representatives of Sarissa Capital serving on our Board of Directors.

Partnership Agreement

On December 11, 2020, Innoviva Strategic Partners LLC (“Strategic Partners”), our wholly owned subsidiary, entered into a subscription agreement (the “Subscription Agreement”) and an Amended and Restated Limited Partnership Agreement (the “Partnership Agreement”) pursuant to which Strategic Partners became a limited partner of ISP Fund LP (the “Partnership”).

The general partner of the Partnership (the “General Partner”) is an affiliate of Sarissa Capital and, pursuant to an investment management agreement, Sarissa Capital acts as the investment adviser to the Partnership.

The general partner of the Partnership (the “General Partner”) is an affiliate of Sarissa Capital and, pursuant to an investment

management agreement, Sarissa Capital acts as the investment adviser to the Partnership.

Strategic Partners made a $300.0 million initial contribution into the Partnership.

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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.

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

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

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

The lock-up period for our initial contribution of $190.0 million 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.

In October 2024, we made an election to unwind the 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.

In 2024, the lock-up period expired, and we elected to unwind the capital accounts in the Partnership.

We expect to receive distributions through April 2026.

Critical Accounting Policies and Estimates

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We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Business Combinations

We use the acquisition method of accounting under Accounting Standards Codification (“ASC”) Topic 805, Business Combinations .

Each acquired company’s operating results are included in our consolidated financial statements starting on the acquisition date.

The purchase price is equivalent to the fair value of consideration transferred.

Tangible and identifiable intangible assets acquired, liabilities assumed and any noncontrolling interest in the acquiree as of the acquisition date are recorded at the acquisition date fair value.

Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed.

Amounts allocated to assets and liabilities are based upon fair values.

Such valuations require us to make significant estimates and assumptions, especially with respect to the identifiable intangible assets.

We make estimates of fair value based upon assumptions believed to be reasonable and that of a market participant.

Significant estimates and assumptions may involve projected future revenues, earnings, cash flows, estimated probabilities of certain milestone achievements, discount rates, asset lives, among other items.

Our estimates may also impact our deferred tax assets and liabilities.

Unanticipated events and circumstances may occur that may affect the accuracy and validity of such assumptions, estimates or actual results.

Our estimates are based on available historical information as well as future expectations, and the estimates are inherently uncertain.

The separately identifiable intangible assets generally include marketed products, in-process research and development and collaboration agreement.

Revenue Recognition from Royalties

We recognize the royalty revenue on net sales of products with respect to which we have contractual royalty rights in the period in which the royalties are earned.

The net sales reports provided by our partner are based on its methodology and assumptions to estimate rebates and returns, which it monitors and adjusts regularly in light of contractual and legal obligations, historical trends, past experience and projected market conditions.

Our partner may make significant adjustments to its sales based on actual results recorded, which could cause our royalty revenue to fluctuate.

We conduct periodic royalty audits to evaluate the information provided by our partner.

Royalties are recognized net of amortization of capitalized fees associated with any approval and launch milestone payments made to GSK.

Revenue Recognition from Product Sales

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

Capitalized Fees Paid

We review our Capitalized Fees for impairment on a product‑by‑product basis for each major geographic area when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

The recoverability of Capitalized Fees is measured by comparing the asset’s carrying amount to the expected undiscounted future cash flows that the asset is expected to generate.

The determination of recoverability typically requires various estimates and assumptions, including estimating the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any.

We derive the required cash flow estimates from near‑term forecasted product sales and long‑term projected sales in the corresponding market.

Based upon our analyses of past, current and future sales and trends, there have been no indicators of impairment and no impairment charges have been recorded on the Capitalized Fees as of December 31, 2024.

We may also enter into contracts that involve a series of manufacturing processes for products and related components.

For any distinct performance obligation where the manufacturing process does not create an asset with alternative use and there is an enforceable right to payment for the performance completed to date, the related revenue is recognized over time.

For these performance obligations satisfied over time, we use an input method to measure progress.

Specifically, we apply the cost-to-cost method, under which progress is calculated as the ratio of costs incurred to date relative to the total estimated costs of the contract.

This method most accurately depicts the transfer of value to the customer because costs incurred are determined to be proportionate to our performance in satisfying the obligation.

Estimated total contract costs are reassessed periodically.

Changes in estimates are accounted for prospectively as changes in estimates.

Variable Interest Entities

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Equity and Other Investments

Our investments in Armata include a convertible note (the “Armata Convertible Note”) and term loans issued in July 2023 and March 2024 (the “July 2023 Armata Term Loan ” and the “March 2024 Armata Term Loan”, respectively), all of which are classified as Level 3 financial instruments.

Our investments in Armata include a convertible note (the “Armata Convertible Note”) and term loans issued in July 2023, March 2024, March 2025 and August 2025, all of which are classified as Level 3 financial instruments.

The Armata Convertible Note is 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 measure the July 2023 Armata Term Loan and the March 2024 Armata Term Loan at fair value using an income approach based on the discounted value of expected future cash flows.

Our Level 3 financial instruments include the Gate convertible promissory note and private placement positions held by ISP Fund LP 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.

We measure the Gate convertible promissory note 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.

We measure the term loans at fair value using an income approach based on the discounted value of expected future cash flows.

Our Level 3 financial instruments include Syndeio Biosciences, Inc.

(“Syndeio”) (formerly known as Gate Neurosciences, Inc.) convertible promissory notes issued in November 2021 and March 2025, and private placement positions held by ISP Fund LP 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.

We measure the Syndeio convertible promissory note at fair value using a Monte Carlo simulation model with the probability of certain qualified events and the assumptions of equity value of Syndeio, risk-free rate, expected stock price, volatility of its peer companies, and the time until a financing is raised.

Valuation models applied for the private placement positions held by ISP Fund LP may include the Black-Scholes-Merton pricing model, the Monte Carlo simulation model and other applicable valuation models.

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The Monte Carlo simulation model also incorporates assumptions made based on transaction details such as the security’s stock price, the expected term, maturity, risk-free interest rates and dividend yield, as well as volatility.

We also hold preferred stock warrants in InCarda Therapeutics Inc.

(“InCarda”), a privately held, clinical-stage biopharmaceutical company.

The preferred stock warrants are classified as Level 3 financial instruments and recorded at fair value subject to remeasurement at each balance sheet date.

We use the Black-Scholes-Merton pricing model to estimate the fair value of the warrants with the following input assumptions:

the exercise price of the warrants, the risk-free interest rate computed based on the U.S.

Treasury yield, the remaining contractual term as the expected term, and the expected stock price volatility calculated based on the historical volatility of the common stock of its public peer companies.

As of December 31, 2024, the fair value of these warrants was minimal.

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 described below.

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

• Sale of our 15% ownership interest in TRC on July 20, 2022;

• Acquisition of La Jolla on August 22, 2022.

Refer to Note 5, “Consolidated Entities and Acquisitions”, to the Consolidated Financial Statements for more information related to our acquisitions of Entasis and La Jolla and the sale of our ownership interest in TRC.

In addition, we hold a convertible note in Lyndra Therapeutics, Inc., which is classified as Level 3 financial instrument.

We measure the convertible note at fair value using an income approach based on the discounted value of probability-weighted cash flow estimates.

Results of Operations

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Royalties – ANORO

Royalties – TRELEGY

Total royalties

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* Not Meaningful

Total royalty revenue, net, decreased to $236.5 million for the year ended December 31, 2025, compared to $241.7 million for the year ended December 31, 2024.

The decrease in total net royalty revenue was primarily due to lower net sales driven by pricing pressures in the United States.

Total royalty revenue, net, increased to $241.7 million for the year ended December 31, 2024, compared to $238.8 million for the year ended December 31, 2023.

The increase in total net royalty revenue was primarily due to the sales growth in ANORO ® ELLIPTA ® .

Total royalty revenue, net, decreased to $238.8 million for the year ended December 31, 2023, compared to $311.6 million for the year ended December 31, 2022.

The decrease in total net royalty revenue was primarily due to the sale of our ownership interest in TRC, which received royalties stemming from sales of TRELEGY ® ELLIPTA ® .

Net Product Sales

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(In thousands)

Rest of the world

Total rest of the world

Total net product sales

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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.

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.

The increase in XACDURO ® ex-U.S.

product sales is attributable mainly to product sales under an interim supply agreement with Zai Lab, which is billed at cost.

License and Other Revenue

License and other revenue, as compared to the prior years, were as follows:

Twelve Months Ended December 31,

(In thousands)

License and other revenue

License revenue for the year ended December 31, 2025 was derived primarily from the continuing activities related to the Amended Zai Agreement and the Zai Manufacturing Stage Transfer Agreement, which both commenced in 2024.

We recognized $8.0 million in license and other revenue for the year ended December 31, 2024 as a result of the achievement of a regulatory milestone under our license agreement with Zai Lab.

We also recognized $8.1 million and $3.4 million in license and other revenue under the Amended Zai Agreement and a manufacturing stage technology transfer agreement with Zai Lab, respectively.

We also recognized $8.1 million and $3.4 million in license and other revenue under the aforementioned Amended Zai Agreement and Zai Manufacturing Stage Transfer Agreement, respectively.

We recognized license and other revenue of $8.0 million and $3.0 million for the year ended December 31, 2023 as a result of achievement of regulatory milestones under our license agreements with Everest and Zai Lab, respectively.

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The step-up value included above amounted to $4.8 million, $13.8 million and $27.2 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Our cost of products sold increased during the periods presented, driven by higher product sales volume.

Our cost of products sold increased during the year ended December 31, 2025 presented, driven by higher product sales volume.

As of December 31, 2025, our total inventory included the remaining net fair value adjustments resulting from the acquisition of La Jolla of approximately $3.4 million, which will be recognized as cost of products sold when sales occur in future periods.

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Compensation and related personnel costs

Acquired IPR&D

Facilities related

Total research and development expenses

Research and development expenses for the year ended December 31, 2025 included $9.4 million of allocated cost for acquired in-process research and development (“IPR&D”) related to the Lynx long-acting drug delivery platform as discussed in Note 14, “Asset Acquisition”, in the Consolidated Financial Statements.

During the year ended December 31, 2025, we also incurred costs related to the continued advancement of NUZOLVENCE ® .

Research and development expenses for the year ended December 31, 2024 were mainly attributable to post marketing commitments required by the FDA and ongoing product development.

Research and development expenses for the year ended December 31, 2023 and 2022 were mainly attributable to our product development efforts for XACDURO ® .

Research and development expenses for the year ended December 31, 2024 decreased compared to the same period in 2023 primarily due to the FDA approval of XACDURO ® in May 2023 and resource reallocation from the research development function to general and administrative function after the FDA approval.

External services costs consist primarily of fees paid to consultants, contractors and contract manufacturing organizations.

Research and development expenses for the year ended December 31, 2023 were mainly attributable to our product development efforts for XACDURO ® .

Selling, General & Administrative

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Selling, general and administrative

Our selling, general and administrative expenses are primarily attributable to efforts to promote our marketed critical care products and drive revenue, maintain regulatory compliance, and support essential administrative functions.

Selling, general and administrative expenses decreased by $2.4 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, during which included incremental expenditures related to the September 2023 commercial launch of XACDURO ® .

Selling, general and administrative expenses increased by $17.5 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase was mainly due to the reallocation of resources from the research and development function, focusing on regulatory compliance since May 2023 after the FDA approval of XACDURO ® , and enhanced commercial strategies resulting from our ongoing efforts to promote and deliver our marketed critical care products to healthcare systems and patients.

Selling, general and administrative expenses for the year ended December 31, 2022 were lower than those for the year ended December 31, 2023, because this amount included only partial-year expenses for Entasis, which we began consolidating on February 17, 2022, and for La Jolla, which we acquired on August 22, 2022.

Interest and Dividend Income and Other Expense, Net

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Other expense, net

Interest and dividend income increased for the years ended December 31, 2024 and 2023, 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 years ended December 31, 2025 and 2024, due to higher average balances of our cash equivalents, money market funds and other interest-bearing investments.

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

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Interest expense

The interest expense for the periods presented included the contractual interest expense and the amortization of debt issuance costs for our convertible senior notes due 2025 (the “2025 Notes”) and our convertible senior notes due 2028 (the “2028 Notes”), as well as effective interest expense on our deferred royalty obligation related to GIAPREZA ® .

The year-over-year increases from 2022 to 2024 were primarily due to a higher effective interest rate on our deferred royalty obligation, driven by stronger sales performance of GIAPREZA ® .

Loss on Debt Extinguishment

For the year ended December 31, 2022, we recognized a loss of $20.7 million due to the total premium payment of $20.4 million and the write-off of $0.3 million debt issuance costs in connection with the repurchase of $144.8 million aggregate principal amount of our 2023 Notes in March 2022.

Gain on Sale of TRC

We recognized a net gain of $266.7 million for the year ended December 31, 2022 due to the sale of our ownership interest in TRC to Royalty Pharma, consummated on July 20, 2022.

The interest expense for the periods presented included 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 year ended December 31, 2025 compared to the year ended December 31, 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.

The year-over-year increase from 2023 to 2024 was primarily due to a higher effective interest rate on our deferred royalty obligation.

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

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* Not Meaningful

The changes in fair values of equity method investments for the year ended December 31, 2024 were unfavorable mainly due to the decrease in Armata’s stock price.

We recorded $64.3 million in unrealized losses, $77.4 million in unrealized gains and $152.5 million in unrealized losses associated with equity investments in Armata for the years ended December 31, 2024, 2023 and 2022, respectively.

The changes in fair values of equity method investments for the year ended December 31, 2022 also included $9.2 million in unrealized losses from our then equity investments in Entasis before the acquisition in July 2022.

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

We recorded $2.3 million in unrealized losses and $23.8 million in unrealized gains for the year ended December 31, 2024 and 2023 related to our other long-term investments in Armata.

The changes in fair values of equity method investments for the year ended December 31, 2025 were favorable mainly due to the appreciation in Armata’s stock price.

We recorded $141.4 million in unrealized gains, $64.3 million in unrealized losses and $77.4 million in unrealized gains associated with our equity method investments in Armata for the years ended December 31, 2025, 2024 and 2023, respectively.

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

We recorded $67.6 million in unrealized gains, $2.3 million in unrealized losses and $23.8 million in unrealized gains for the years ended December 31, 2025, 2024 and 2023, respectively, related to our other long-term investments in Armata, and unrealized gains of $10.7 million for the year ended December 31, 2025 related to our investments in Syndeio.

Refer to Note 6, “Equity and Long-Term Investments and Fair Value Measurements”, to the Consolidated Financial Statements for more information.

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Income tax expense, net

* Not Meaningful

As of December 31, 2025, 2024 and 2023, we had net operating loss carryforwards for federal income taxes of $497.7 million, $520.6 million and $543.5 million, respectively.

As of December 31, 2024, 2023 and 2022, we also had state net operating loss carryforwards of approximately $1.0 billion which will expire beginning 2030.

As of December 31, 2024, we had state research and development tax credits of $33.3 million.

For the years ended December 31, 2024, 2023 and 2022, we recognized $14.0 million, $14.4 million and $66.7 million, respectively, of income tax expense, mainly based on the taxable income generated during those years.

As of December 31, 2025, 2024 and 2023, we also had state net operating loss carryforwards of approximately $1,028.9 million, which will expire beginning 2030.

As of December 31, 2025, we had state research and development tax credits of $33.6 million, which will expire beginning 2033.

For the years ended December 31, 2025, 2024 and 2023, we recognized $55.7 million, $14.0 million and $14.4 million, respectively, of income tax expense, mainly based on the income generated during those years.

The increase in income tax expense for the year ended December 31, 2025 was mainly due to the significant value appreciation of our investments in Armata.

Our total unrecognized tax benefits as of December 31, 2025, 2024 and 2023 were $62.7 million, $61.3 million and $19.4 million, respectively.

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As of December 31, 2025, $146.5 million of Entasis’ federal net operating losses and $351.2 million of La Jolla’s federal operating losses from the acquisitions in 2022, both subject to annual limitations, were available for future utilization.

The Organization for Economic Co-operation and Development (“OECD”) Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) addresses the tax challenges arising from the digitalization of the global economy.

It aims to restore confidence in the international tax system by ensuring that profits are taxed where economic activities take place and value is created.

On April 25, 2024, the OECD published the Consolidated Commentary (“Commentary”) to the Pillar Two Global Anti-Base Erosion (“GloBE”) Model Rules, incorporating all agreed Administrative Guidance that has been released by the Inclusive Framework from March 2022 through December 2023.

The Commentary aims to provide tax administrations and taxpayers with guidance on the interpretation and application of the GloBE Model Rules.

The Company is not subject to Pillar Two this fiscal year;

however, it will continue to monitor the tax implications of the legislative changes if and when its non-U.S.

footprint expands in the future.

Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interests for the year ended December 31, 2022 was $6.3 million, which consisted of share of noncontrolling interests in TRC and Entasis.

There were no noncontrolling interests for the years ended December 31, 2024 and 2023.

Liquidity and Capital Resources

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Cash and cash equivalents totaled $550.9 million, royalties receivable from GSK totaled $58.4 million and accounts receivable associated with our marketed products and related arrangements totaled $35.0 million, as of December 31, 2025.

As of December 31, 2024, we had two outstanding convertible notes, the 2025 Notes and the 2028 Notes, in an aggregate principal amount of $453.5 million, of which $192.5 million and $261.0 million will become due in August 2025 and March 2028, respectively.

Future interest payments associated with these notes total $24.2 million.

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

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

The lock-up period for our initial contribution of $190.0 million 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.

As of December 31, 2025, we had one outstanding convertible note, the 2028 Notes, in an aggregate principal amount of $261.0 million, which will become due in March 2028.

Future interest payments associated with this note total $13.9 million.

On November 3, 2025, our Board of Directors authorized a share repurchase program under which we may repurchase up to $125.0 million of Innoviva’s outstanding shares of common stock.

As of December 31, 2025, we have repurchased Innoviva common stock in the open market for total price of approximately $4.6 million.

This program has no termination date, may be suspended or discontinued at any time at our discretion and does not oblige us to acquire any amount of common stock.

In 2024, we elected to unwind our capital accounts in ISP Fund LP.

In 2025, we received $121.0 million cash distributions and expect to continue receiving distributions through April 2026.

Adequacy of Cash Resources to Meet Future Needs

We believe that our cash and cash equivalents will be sufficient to meet our anticipated debt service and operating needs for at least the next 12 months based upon current operating plans and financial forecasts.

Our long-term capital requirements will depend on many factors including the amount of our royalty revenues, sales growth of our currently marketed products, timing of regulatory approval of our product candidate and outcome of our acquisitions and strategic investments.

We believe that our cash and cash equivalents will be sufficient to meet our anticipated debt service and operating needs, as well our ongoing share repurchase program, for at least the next 12 months based upon current operating plans and financial forecasts.

Our long-term capital requirements will depend on many factors including the amount of our royalty revenues, sales growth of our currently marketed products, timing of regulatory approval of our product candidates and outcome of our acquisitions and strategic investments.

If our current operating plans and financial forecasts change, we may require additional funding sooner in the form of public or private equity offerings or debt financings.

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Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Cash Flows from Operating Activities

Cash provided by operating activities for the year ended December 31, 2025 was $196.9 million, consisting primarily of our net income of $271.2 million adjusted for net noncash items of $50.1 million and net changes in operating assets and liabilities of $24.2 million.

Noncash items included a $161.6 million net increase in fair values of equity method investments and equity and long-term investments, partially offset by $43.8 million in deferred income taxes, $26.3 million in amortization of acquired intangible assets, $14.0 million of amortization of capitalized fees and depreciation of property and equipment, $9.5 million in stock-based compensation expense, $9.4 million in acquired in-process research and development assets, $4.8 million in inventory fair value adjustments included in cost of products sold and $1.9 million in amortization of debt discount and issuance costs.

The changes in operating assets and liabilities included increases in accounts receivable of $14.6 million, inventory of $12.9 million, prepaid expenses of $5.7 million and other assets of $1.1 million, and decreases in accrued personnel-related and other accrued liabilities of $5.8 million and accrued interest payable of $1.8 million, partially offset by a decrease in receivables from collaboration arrangements of $7.6 million and increases in accounts payable of $2.8 million, deferred revenue of $3.1 million and income tax payable of $4.1 million.

Cash provided by operating activities for the year ended December 31, 2024 was $188.7 million, consisting primarily of our net income of $23.4 million adjusted for net noncash items of $172.2 million, partially offset by net changes in operating assets and liabilities of $6.9 million.

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The changes in operating assets and liabilities included increases in receivables from collaboration arrangements of $14.9 million, inventory of $12.0 million, accounts receivable of $5.1 million, other assets of $3.0 million and a decrease in personnel-related, interest and other accrued expenses of $2.4 million, partially offset by a decrease in prepaid expenses of $7.9 million and increases in accounts payable of $3.8 million and income tax payable of $1.7 million.

Cash provided by operating activities for the year ended December 31, 2022 was $201.7 million, consisting primarily of our net income of $220.3 million and net changes in operating assets and liabilities of $6.9 million, partially offset by net non-cash items of $25.4 million.

Non-cash items included a net gain of $266.7 million recognized on the sale of TRC, partially offset by net non-cash charges of $241.3 million.

Non-cash charges included a $153.3 million net decrease in fair values of equity method investments and equity and long-term investments, $25.0 million of deferred income taxes, $13.9 million of amortization of capitalized fees and depreciation of property and equipment and $5.6 million in amortization of acquired intangible assets, $20.7 million in loss on the extinguishment of debt, $7.3 million in stock-based compensation expense, $10.0 million in inventory fair value adjustments included in cost of products sold and $2.1 million in the amortization of debt discount and issuance costs.

The changes in operating assets and liabilities included an increase in prepaid expenses of $21.4 million, a decrease in receivables from collaboration arrangements of $13.3 million and increases of $11.9 million and $10.0 million in accrued personnel-related expenses and other accrued liabilities and in income tax payable, respectively.

Cash Flows from Investing Activities

Net cash provided by investing activities for the year ended December 31, 2025 of $40.5 million included $92.8 million for purchases and sales of other investments managed by ISP Fund LP, net, $28.2 million for sales of equity investments managed by ISP Fund LP and $8.4 million in proceeds from trading securities.

Net cash provided by investing activities was partially offset by $60.9 million for purchases of trading securities, $17.5 million for purchases of equity and long-term investments, $9.4 million in cash paid for acquired in-process research and development assets, and $1.1 million for purchases of property and equipment.

Net cash used in investing activities for the year ended December 31, 2024 of $63.8 million included $59.6 million for purchases of trading securities, $32.3 million for purchases of equity investments managed by ISP Fund LP and $43.5 million in net purchases and sales of other investments managed by ISP Fund LP.

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Net cash used in investing activities was partially offset by $72.5 million in sales of equity investments managed by ISP Fund LP.

Net cash used in investing activities for the year ended December 31, 2022 of $56.6 million included $159.1 million in cash paid for the acquisition of La Jolla, net of cash acquired, $58.7 million in purchases of equity and long-term investments, $60.9 million in purchases of equity investments managed by ISP Fund LP, $50.0 million in purchases of a trading security managed by ISP Fund LP and $23.4 million in net purchases and sales of other investments managed by ISP Fund LP.

Net cash used in investing activities was partially offset by $248.2 million in net proceeds from the sale of our ownership interest in TRC, $24.3 million in sales of equity investments managed by ISP Fund LP and $23.1 million in cash acquired through the consolidation of Entasis.

Cash Flows from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2025 of $8.6 million included $10.7 million in proceeds from the exercise of warrants and $2.6 million in net proceeds from issuances of common stock, partially offset by $4.5 million for the repurchases of our common stock under the new stock repurchase program.

Net cash used in financing activities for the year ended December 31, 2024 of $13.5 million included $14.8 million for the repurchases of our common stock under the stock repurchase program, partially offset by $1.5 million in net proceeds from issuances of common stock.

Net cash used in financing activities for the year ended December 31, 2023 of $171.8 million consisted mainly of the repayments of $96.2 million upon maturity of the 2023 Notes in January 2023 and $75.7 million for the repurchases of our common stock under the stock repurchase program.

Net cash used in financing activities for the year ended December 31, 2022 of $55.6 million included $165.1 million for the repurchase of convertible subordinated notes due 2023, $69.8 million in distributions to noncontrolling interest, $43.9 million for the purchase of Entasis noncontrolling interest, $21.0 million for purchases of capped call options associated with our 2028 Notes and $8.5 million for the repurchase of common stock.

Net cash used in financing activities was partially offset by $252.5 million in net proceeds from the issuance of our 2028 Notes.

Contractual Obligations

As of December 31, 2024, 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 December 31, 2025, our notes payable obligation included $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 12, “Debt” to the Consolidated Financial Statements for more information.

Our short-term and long-term obligations also include contractual payments related to our operating leases amounting to $3.0 million, with approximately $1.7 million payable in 2025 and approximately $0.4 million payable in each of the years 2026 through 2028.

Our short-term and long-term obligations also include contractual payments related to our operating leases amounting to $14.9 million, with approximately $1.0 million payable in 2026, amounts ranging between $1.2 million and $1.5 million payable in each of the years 2027 to 2030, and $8.5 million payable thereafter.

Refer to Note 13, “Commitments and Contingencies” to the Consolidated Financial Statements for more information.

As part of our acquisition of La Jolla, we recognized its deferred royalty obligation in connection with La Jolla Royalty Agreement with HCR.

As part of our acquisition of La Jolla, we recognized its deferred royalty obligation in connection with the La Jolla Royalty Agreement with HCR.

Under the terms of the Agreement, HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA ® until either January 1, 2031 or when the maximum aggregate royalty payments have been made, whichever occurs first.

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 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 maximum royalty rate is 18% based on the terms of the agreement.

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

Additionally, we have certain contingent payment obligations under various in-license agreements which we are required to make royalty payments or milestone payments upon successful completion and achievement of certain milestones.

Refer to Note 4, “License and Collaboration Arrangements” to the Consolidated Financial Statements for more information.

Refer to Note 4, “License, Collaboration and Other Arrangements” to the Consolidated Financial Statements for more information.

We also 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.

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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 7. Management’s Discussion and Analysis