Innoviva, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) is intended to facilitate an understanding of our business and results of operations. This discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this Annual Report on Form 10‑K. The information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10‑K, including information with respect to our plans and strategy for our business, our operating expenses, and future payments under our collaboration agreements, includes forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. You should review the section entitled “Risk Factors” in Item 1A of Part I above for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward‑looking statements contained in the following discussion and analysis. See the section entitled “Special Note Regarding Forward Looking Statements” above for more information. Management Overview Innoviva, Inc. (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. 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”). 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: 15% on the first $3.0 billion of annual global net sales and 5% for all annual global net sales above $3.0 billion; and royalties from the sales of ANORO ® ELLIPTA ® , which tier upward at a range from 6.5% to 10%. 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; and • 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. As of December 31, 2025, we had 159 employees. 83 Table of Contents 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 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 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 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 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: Totaled $550.9 million. Royalty and net product sales receivables totaled $93.3 million as of December 31, 2025. Key Business and R&D Highlights • 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. 84 Table of Contents • 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 LABA Collaboration 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 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”), 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. The milestone fees paid to GSK were recognized as capitalized fees, which are being amortized over their estimated useful lives commencing upon the commercial launch of the products. We are entitled to receive royalties from GSK on sales of RELVAR ® /BREO ® ELLIPTA ® as follows: 15% on the first $3.0 billion of annual global net sales and 5% for all annual global net sales above $3.0 billion. On sales of ANORO ® ELLIPTA ® , royalties are upward tiering and range from 6.5% to 10%. Strategic Partnership with Sarissa Capital Strategic Advisory Agreement On December 11, 2020, we entered into a Strategic Advisory Agreement (the “Services Agreement”) with Sarissa Capital Management LP (“Sarissa Capital”), pursuant to which Sarissa Capital provides a variety of strategic services to us in order to assist us in the development and execution of our acquisition strategy. The services are provided free of charge to us. 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 85 Table of Contents management agreement, Sarissa Capital acts as the investment adviser to the Partnership. Strategic Partners made a $300.0 million initial contribution into the Partnership. The Partnership was formed for the purposes of investing in equity securities in the healthcare, pharmaceutical and biotechnology industries. The Partnership Agreement provides for Sarissa Capital to receive a customary one percent management fee from the Partnership, payable quarterly in advance, measured based on the Net Asset Value of Strategic Partners’ capital account in the Partnership. In addition, the General Partner is entitled to a customary 10% annual performance allocation based on the Net Profits of the Partnership during the annual measurement period. 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 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 Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 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. Revenue Recognition from Product Sales We apply the guidance on principal versus agent considerations under ASC Topic 606, Revenue from Contracts with Customers , to determine the appropriate treatment for the transactions between us and third parties. The classification of transactions under our arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants. Any consideration related to activities in which we are considered the principal, which includ es being in control of the good or service before such good or service is transferred to the customer, are accounted for as product sales. Prior to recognizing any revenue from product sales, we identify the contract, performance obligations, and transaction price, and allocate the transaction price to the performance obligations. Revenue from product sales is recognized when our customers obtain control of the product and is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns and rebates. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from our estimates. If actual results vary materially from our estimates, we will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted. These items may include: • Chargebacks: Chargebacks are discounts we provide to distributors in the event that the sales prices to end users are below the distributors’ acquisition price. This may occur due to a direct contract with a health system, a group purchasing organization (“GPO”) agreement or a sale to a government facility. Chargebacks are estimated based on known chargeback rates and recorded as a reduction of revenue on delivery to our customers. • Discounts: We offer customers various forms of incentives and consideration, including prompt-pay and other discounts. We estimate discounts primarily based on contractual terms. These discounts are recorded as a reduction of revenue on delivery to our customers. • Returns: We offer customers a limited right of return, generally for damaged or expired product. We estimate returns based on an internal analysis, which includes actual experience. The estimates for returns are recorded as a reduction of revenue on delivery to our customers. 86 Table of Contents • Rebates: We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the quarter in which product was sold. Additionally, we may offer customer incentives and consideration in the form of volume-based or other rebates. The estimates for rebates are recorded as a reduction of revenue on delivery to our customers. We continue to assess our estimates of variable consideration as we accumulate additional historical data and will adjust these estimates accordingly. 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 The primary beneficiary of a variable interest entity (“VIE’) is required to consolidate the assets and liabilities of the VIE. When we obtain a variable interest in another entity, we assess at the inception of the relationship and upon occurrence of certain significant events whether the entity is a VIE and, if so, whether we are the primary beneficiary of the VIE based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. To determine whether a variable interest that we hold could potentially be significant to the VIE, we consider both qualitative and quantitative factors regarding the nature, size and form of our involvement with the VIE. To assess whether we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, we consider all the facts and circumstances, including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (management and representation on the Board of Directors) and have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE. To assess whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, we consider all of our economic interests that are deemed to be variable interests in the VIE. This assessment requires us to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Equity and Other Investments 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 term loans at fair value using an income approach based on the discounted value of expected future cash flows. 87 Table of Contents 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. Key assumptions involve inputs to the Black-Scholes-Merton pricing model, probability rates of certain events and scenarios applied in the Monte Carlo simulation model and discount rates, as appropriate. 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. 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 Net Revenue Royalty Revenue Total royalty revenue, net, as compared to the prior years, was as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % Royalties – RELVAR/BREO $ 204,021 $ 207,925 $ 208,042 $ (3,904 ) (2 )% $ (117 ) (0 )% Royalties – ANORO 46,281 47,631 44,627 (1,350 ) (3 )% 3,004 7 % Total royalties 250,302 255,556 252,669 (5,254 ) (2 )% 2,887 1 % Less: amortization of capitalized fees paid (13,823 ) (13,823 ) (13,823 ) — * — * Total net royalty revenue $ 236,479 $ 241,733 $ 238,846 $ (5,254 ) (2 )% $ 2,887 1 % * 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 ® . 88 Table of Contents Net Product Sales Total product sales, net, as compared to the prior years, was as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % U.S. GIAPREZA ® $ 71,831 $ 53,410 $ 40,761 $ 18,421 34 % $ 12,649 31 % XERAVA ® 13,341 12,777 12,441 564 4 % 336 3 % XACDURO ® 33,448 14,668 2,003 18,780 128 % 12,665 * ZEVTERA ® 610 — — 610 * — * Total U.S. 119,230 80,855 55,205 38,375 47 % 25,650 46 % Rest of the world GIAPREZA ® 1,780 1,627 533 153 9 % 1,094 205 % XERAVA ® 10,175 8,608 4,879 1,567 18 % 3,729 76 % XACDURO ® 40,945 6,402 — 34,543 * 6,402 * Total rest of the world 52,900 16,637 5,412 36,263 218 % 11,225 207 % Total net product sales $ 172,130 $ 97,492 $ 60,617 $ 74,638 77 % $ 36,875 61 % * Not Meaningful 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: Change Twelve Months Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % License and other revenue $ 2,719 $ 19,486 $ 11,000 $ (16,767 ) (86 )% $ 8,486 77 % 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 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. Cost of Products Sold Cost of products sold, as compared to the prior years, were as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % Cost of product sold $ 77,384 $ 36,598 $ 41,040 $ 40,786 111 % $ (4,442 ) (11 )% 89 Table of Contents The cost of products sold also includes the inventory step-up value from the acquisition of La Jolla, which is recorded upon the sale of such inventory. 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 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. Research & Development Research and development expenses, as compared to the prior years, were as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % Research and development $ 30,604 $ 13,654 $ 33,922 $ 16,950 124 % $ (20,268 ) (60 )% Research and development expenses consisted of the following: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % External services $ 15,704 $ 7,408 $ 20,051 $ 8,296 112 % $ (12,643 ) (63 )% Compensation and related personnel costs 5,284 4,948 10,081 336 7 % (5,133 ) (51 )% Acquired IPR&D 9,368 — — 9,368 * — * Facilities related 53 733 2,483 (680 ) (93 )% (1,750 ) (70 )% Other 195 565 1,307 (370 ) (65 )% (742 ) (57 )% Total research and development expenses $ 30,604 $ 13,654 $ 33,922 $ 16,950 124 % $ (20,268 ) (60 )% 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 were mainly attributable to our product development efforts for XACDURO ® . Selling, General & Administrative Selling, general and administrative expenses, as compared to the prior years, were as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % Selling, general and administrative $ 113,318 $ 115,690 $ 98,232 $ (2,372 ) (2 )% $ 17,458 18 % 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. 90 Table of Contents Interest and Dividend Income and Other Expense, Net Interest and dividend income and other expense, net, as compared to the prior years, were as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % Interest and dividend income $ 21,086 $ 19,141 $ 15,818 $ 1,945 10 % $ 3,323 21 % Other expense, net (2,864 ) (2,997 ) (4,969 ) 133 (4 )% 1,972 (40 )% 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. Interest Expense Interest expense, as compared to the prior years, was as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % Interest expense $ (16,698 ) $ (22,209 ) $ (19,157 ) $ 5,511 (25 )% $ (3,052 ) 16 % 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 Changes in fair values of equity method investments and equity and long-term investments, net, as compared to the prior years, were as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % Changes in fair values of equity method investments, net $ 141,433 $ (64,253 ) $ 77,392 $ 205,686 * $ (141,645 ) * Changes in fair values of equity and long-term investments, net $ 20,160 $ (59,161 ) $ 11,129 $ 79,321 * $ (70,290 ) * * Not Meaningful 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. 91 Table of Contents Income Taxes Income tax expense, net, as compared to the prior years, was as follows: Change Year Ended December 31, 2025 2024 (In thousands) 2025 2024 2023 $ % $ % Income tax expense, net $ (55,697 ) $ (13,996 ) $ (14,376 ) $ (41,701 ) * $ 380 (3 )% * 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, 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. The increase of $41.9 million in 2024 was primarily due to our strategic intercompany intellectual property alignment across different jurisdictions. Utilization of net operating loss and tax credit carryforwards is subject to rules, provided by the Internal Revenue Code and similar state provisions, governing annual limitations tied to ownership changes. We conducted an analysis of the Company through December 31, 2025 to determine whether an ownership change had occurred since inception. The study concluded that it is more likely than not that the Company did not experience an ownership change during the testing period. If we ever undergo an ownership change, the utilization of the pre-ownership change net operating loss carryforwards or pre-ownership change tax attributes, such as research tax credits, to offset the post-ownership change income may be subject to an annual limitation, pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. Similar rules may apply under state tax laws. 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. Liquidity and Capital Resources Liquidity Since our inception, we have financed our operations primarily through private placements and public offerings of equity and debt securities and payments received under collaborative arrangements. For the year ended December 31, 2025, we generated gross royalty revenues of $250.3 million, net product sales revenues of $172.1 million and license and other revenue of $2.7 million. 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, 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. 92 Table of Contents 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, 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. 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. This could leave us without adequate financial resources to fund our operations as currently planned. In addition, from time to time we may restructure or reduce our debt, including through privately negotiated repurchases, tender offers, redemptions, amendments, or otherwise, all allowable with the terms of our debt agreements. Cash Flows Cash flows, as compared to the prior years, were as follows: Year Ended December 31, Change (In thousands) 2025 2024 2023 2025 2024 Net cash provided by operating activities $ 196,930 $ 188,690 $ 141,064 $ 8,240 $ 47,626 Net cash provided by (used in) investing activities 40,496 (63,786 ) (66,761 ) 104,282 2,975 Net cash provided by (used in) financing activities 8,551 (13,453 ) (171,839 ) 22,004 158,386 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. Noncash items included a $123.4 million net decrease in fair values of equity method investments and equity and long-term investments, $25.9 million in amortization of acquired intangible assets, $14.0 million of amortization of capitalized fees and depreciation of property and equipment, $13.8 million in inventory fair value adjustments included in cost of products sold, $6.4 million in stock-based compensation expense, and $2.1 million in amortization of debt discount and issuance costs, partially offset by $12.6 million of deferred income taxes. The changes in operating assets and liabilities included increases in other assets of $38.2 million, inventory of $6.8 million, accounts receivable of $5.9 million, and a decrease in accounts payable of $4.6 million, partially offset by an increases in income tax payable of $41.5 million and accrued liabilities of $3.0 million and a decrease in receivables from collaboration arrangements of $3.6 million. 93 Table of Contents Cash provided by operating activities for the year ended December 31, 2023 was $141.1 million, consisting primarily of our net income of $179.7 million, partially offset by net non-cash items of $13.9 million and net changes in operating assets and liabilities of $24.8 million. Non-cash items included a $88.5 million net increase in fair values of equity method investments and equity and long-term investments, partially offset by $27.2 million in inventory fair value adjustments included in cost of products sold, $21.8 million in amortization of acquired intangible assets, $13.9 million of amortization of capitalized fees and depreciation of property and equipment, $5.8 million in stock-based compensation expense, $4.4 million of deferred income taxes and $2.1 million in amortization of debt discount and issuance costs. 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 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. Net cash used in investing activities was partially offset by $75.8 million in sales of equity investments managed by ISP Fund LP. Net cash used in investing activities for the year ended December 31, 2023 of $66.8 million included $65.1 million for purchases trading securities, $31.2 million for purchases of equity investments managed by ISP Fund LP, $41.3 million in net purchases and sales of other investments managed by ISP Fund LP and $1.2 million for purchases of equity and long-term investments. Net cash used in investing activities was partially offset by $72.5 million in sales of equity investments managed by ISP Fund LP. 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. Contractual Obligations 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 $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. 94 Table of Contents 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 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, 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. Under the agreement, we committed to minimum purchases through December 31, 2027. As of December 31, 2025, we have approximately $13.2 million U.S. dollar equivalent in outstanding purchase commitments under this agreement. We also enter into agreements in the normal course of business with vendors for manufacturing, clinical trials and pre-clinical studies, and other services and products for operating purposes.