What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-05 compared with 2026-05-06 · 68 added, 56 removed, 190 unchanged (39% of the section changed)

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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.

First Quarter 2026 and Recent Highlights:

Second Quarter 2026 and Recent Highlights:

Financial Highlights

• Total revenue:

$98.0 million, yielding 11% growth compared to $88.6 million for the first quarter 2025.

$119.6 million, representing 19% year-on-year growth compared to $100.3 million for the second quarter 2025.

• Royalty revenue:

gross royalty revenue from GSK was $58.6 million, compared to $61.3 million for the first quarter 2025.

gross royalty revenue from GSK remains stable at $59.8 million in the second quarter of 2026, a 2% increase compared to $58.6 million in the first quarter of 2026.

• Net product sales:

$51.8 million ($36.6 million U.S.

and $7.2 million ex-US), representing 37% growth compared to $30.3 million in the same quarter of 2025.

and $15.2 million ex-US), representing 46% growth compared to $35.5 million in the second quarter of 2025.

net product sales primarily consisted of $21.0 million from GIAPREZA ® , $12.0 million from XACDURO ® , and $3.3 million from XERAVA ® .

• Income from operations:

$38.2 million, compared to $41.4 million for the first quarter 2025, reflecting continued investment in commercial activities, as well as product and business development.

$50.9 million, compared to $48.8 million for the second quarter 2025, reflecting higher net product sales and continued operating discipline.

• Equity and long-term investments:

net favorable changes in fair value of equity and long-term investments totaled $191.2 million, primarily attributable to share price appreciation of Armata.

Innoviva’s strategic healthcare investments were valued at $773.3 million as of March 31, 2026, and consisted of $603.4 million in Armata, $138.2 million in other strategic equity and convertible debt, and $31.7 million held by ISP Fund.

net unfavorable changes in fair value of equity and long-term investments totaled $161.0 million, primarily attributable to a lower share price of Armata .

Innoviva’s strategic healthcare investments were valued at $669.5 million as of June 30, 2026, and consisted of $457.7 million in Armata, $177.3 million in other strategic equity and convertible debt, and $34.5 million held by ISP Fund.

• Net income:

$186.6 million ($2.52 basic earnings per share) was driven primarily by higher revenue and the positive impact of changes in the fair values of equity and long-term investments.

net loss of $83.4 million, or $1.14 basic loss per share, driven primarily by decrease in fair value of equity and long-term investments.

• Cash and cash equivalents:

Totaled $570.4 million.

Royalty and net product sales receivables totaled $92.6 million as of March 31, 2026.

Royalty and net product sales receivables totaled $110.6 million as of June 30, 2026, a 25% year-on-year increase compared to $88.3 million for the second quarter of 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 U.S.

FDA approval of NUZOLVENCE ® , one of the first new treatments approved by the FDA for uncomplicated urogenital gonorrhea in nearly two decades.

o The Company remains on track to make NUZOLVENCE ® available to patients in the second half of 2026.

• 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 During the second quarter, IST entered into an exclusive distribution and licensing agreement with Dr.

Reddy’s Laboratories Ltd., a global pharmaceutical company, for the development and commercialization of XACDURO ® in South and Central America, the Caribbean, Russia and Commonwealth of Independent States countries.

• Strategic Healthcare Assets

o Innoviva’s strategic healthcare asset portfolio experienced meaningful growth this quarter, including notable value crystallization at Armata.

Innoviva remains focused on disciplined capital deployment across healthcare opportunities where it believes its strategic perspective and operating experience can support long-term sustained returns.

o During the second quarter, Innoviva launched Nortiva Bio (a wholly owned subsidiary), to advance the proprietary LYNX long-acting oral drug delivery platform.

The LYNX platform is designed to transform daily oral medicines into less frequent dosing regimens, including once-weekly or once-monthly therapies.

The platform is designed to improve patient adherence, stabilize drug exposure, and enhance clinical and commercial value by enabling less frequent oral dosing.

o Nortiva is advancing a lead once-monthly oral drug therapy development program (via support from the Gates Foundation) and building an external partnering pipeline to enable the development of long-acting oral versions of branded and generic therapies.

• Capital Allocation

o During the first quarter of 2026, Innoviva repurchased 971,066 shares for $20.4 million under its $125 million share repurchase program.

Since its inception, and through the end of this quarter, the Company has repurchased 1,198,921 shares for $25.0 million, reflecting the Company’s continued confidence in its intrinsic value and long-term outlook.

o During the second quarter of 2026, Innoviva repurchased 1,403,247 shares for $31.4 million under its $125 million share repurchase program.

Since inception, and through the end of the second quarter, the Company has repurchased 2,602,168 shares for $56.4 million, reflecting the Company’s continued confidence in its intrinsic value and long-term outlook.

o During the second quarter of 2026, Innoviva continued to support companies in its strategic healthcare asset portfolio with $55.0 million aggregate capital commitment.

LABA Collaboration

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Total net royalty revenue decreased to $55.2 million for the three months ended March 31, 2026, compared to $57.8 million for the same period a year ago.

Total net royalty revenue decreased to $56.3 million and $111.5 million for the three and six months ended June 30, 2026, compared to $63.9 million and $121.7 million for the same periods a year ago.

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

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

Our net product sales increased overall 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.

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License and other revenue

License and other revenue for the three months ended March 31, 2026 was derived primarily from our ongoing arrangements with Zai Lab as discussed in Note 4, “License, Collaboration and Other Arrangements”, to the Condensed Consolidated Financial Statements.

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License and other revenue for the three and six months ended June 30, 2026 was derived primarily from our ongoing arrangements with Zai Lab and new agreements with GARDP and DRL as discussed in Note 4, “License, Collaboration and Other Arrangements”, to the Condensed Consolidated Financial Statements.

Cost of Products Sold

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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 $1.1 million and $0.2 million for the three months ended March 31, 2026 and 2025, respectively.

Our cost of products sold increased during the three months ended March 31, 2026, driven by higher product sales volume.

As of March 31, 2026, our total inventory included the remaining net fair value adjustments resulting from the acquisition of La Jolla of approximately $2.2 million, which will be recognized as cost of products sold when sales occur in future periods.

The step-up value included above amounted to $0.9 million and $2.0 million for the three and six months ended June 30, 2026, respectively, and $0.4 million and $0.6 million for the three and six months ended June 30, 2025, respectively.

Our cost of products sold increased during the three and six months ended June 30, 2026, driven by higher product sales volume.

As of June 30, 2026, our total inventory included the remaining net fair value adjustments resulting from the acquisition of La Jolla of approximately $1.4 million, which will be recognized as cost of products sold when sales occur in future periods.

Research and Development

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Research and development expenses for the three months ended March 31, 2026 were $5.2 million.

Research and development expenses for the three and six months ended June 30, 2026 were $5.2 million and $10.4 million, respectively.

The expenses for the current period include additional personnel and facilities costs in support of the acquired IPR&D as discussed in Note 13, “Asset Acquisition”, in the Condensed Consolidated Financial Statements.

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

Research and development expenses for the three and six months ended June 30, 2025, which consisted primarily of the continued advancement of zoliflodacin, approved by the FDA in December 2025, were $8.0 million and $12.4 million, respectively.

Selling, General & Administrative

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Selling, general and administrative

Our selling, general and administrative expenses were $32.4 million and $27.5 million for the three months ended March 31, 2026 and 2025, respectively.

The increase during the current period is a result of our ongoing efforts to promote our marketed critical care products and drive revenue, maintain regulatory compliance, and support essential administrative functions for general operations.

Our selling, general and administrative expenses increased for the three and six months ended June 30, 2026, compared to the corresponding periods in 2025.

The increase during the current period was primarily attributable to our ongoing efforts to expand our sales force to meet demand in new regions, promote our marketed critical care products and drive revenue, maintain regulatory compliance, and support essential administrative functions for general operations.

Interest and Dividend Income and Other Expense, Net

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Other expense, net

Interest and dividend income increased for the three months ended March 31, 2026, compared to the same period in 2025, due to higher average balances of our cash equivalents, money market funds and other interest-bearing investments.

Interest and dividend income increased for the three and six months ended June 30, 2026, compared to the same period in 2025, due to higher average balances of our cash equivalents, money market funds and other interest-bearing investments.

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

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Interest expense

Our interest expense for the three months ended March 31, 2026 and 2025 comprised mainly of the contractual interest expense and the amortization of debt issuance costs for our 2028 Notes, as well as effective interest expense on our deferred royalty obligation related to GIAPREZA ® .

The increase for the three months ended March 31, 2026, compared to the same period in 2025, was mainly due to higher interest expense on our deferred royalty obligation as a result of higher sales performance of GIAPREZA ® .

Our interest expense for the three and six months ended June 30, 2026 and 2025 comprised mainly of the contractual interest expense and the amortization of debt issuance costs for our 2028 Notes, as well as effective interest expense on our deferred royalty obligation related to GIAPREZA ® .

The increase for the three and six months ended June 30, 2026, compared to the same period in 2025, was mainly due to higher interest expense on our deferred royalty obligation as a result of higher sales performance of GIAPREZA ® .

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

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The changes in fair values of equity method investments for the three months ended March 31, 2026 were favorable mainly due to the appreciation in Armata’s stock price.

We recorded $157.7 million in unrealized gain for the three months ended March 31, 2026, compared to $13.5 million in unrealized loss for the three months ended March 31, 2025.

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

We recorded $47.8 million net positive changes in fair values of equity and long-term investments for the three months ended March 31, 2026 related to other long-term investments we made in Armata, and net negative changes in fair value of our investments in Syndeio of $13.8 million for the three months ended March 31, 2026.

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

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

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

The changes in fair values of equity method investments for the three and six months ended June 30, 2026 were driven by fluctuations in Armata’s stock price during the reporting periods.

We recorded $131.8 million in unrealized loss and $25.8 million in unrealized gain for the three and six months ended June 30, 2026, respectively, compared to $13.1 million in unrealized gain and $0.5 million in unrealized loss for the three and six months ended June 30, 2025, respectively.

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

We recorded $38.8 million in net negative changes in fair values of equity and long-term investments for the three months ended June 30, 2026 and $8.9 million in net positive changes in fair values of equity and long-term investments for the six months ended June 30, 2026, respectively, related to other long-term investments we made in Armata.

We recorded net positive changes in fair value of our investments in Syndeio of $6.6 million and net negative changes of $7.2 million for the three and six months ended June 30, 2026, respectively.

We recorded $3.0 million and $2.7 million in net positive changes in fair values of equity and long-term investments related to the investments managed by ISP Fund LP for the three and six months ended June 30, 2026, respectively.

Provision for Income Taxes

We recorded income tax expense of $48.0 million for the three months ended March 31, 2026, compared to income tax expense of $8.0 million for the three months ended March 31, 2025.

The effective income tax rate for the three months ended March 31, 2026 and 2025 was 20.5% and (20.7)%, respectively.

We recorded income tax benefit of $24.6 million and income tax expense of $23.4 million for the three and six months ended June 30, 2026, respectively, compared to income tax expense of $8.9 million and $16.9 million for the three and six months ended June 30, 2025, respectively.

The effective income tax rate for the six months ended June 30, 2026 and 2025 was 18.5% and 49.7%, respectively.

Liquidity and Capital Resources

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

For the three months ended March 31, 2026, we generated gross royalty revenues from GSK of $58.6 million, net product sales of $41.4 million and license and other revenue of $1.5 million.

Cash and cash equivalents totaled $603.1 million, royalties receivable from GSK totaled $58.6 million and accounts receivable associated with our product sales and license and other revenue totaled $34.0 million as of March 31, 2026.

As of March 31, 2026, 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.

For the six months ended June 30, 2026, we generated gross royalty revenues from GSK of $118.4 million, net product sales of $93.1 million and license and other revenue of $12.9 million.

Cash and cash equivalents totaled $570.4 million, royalties receivable from GSK totaled $59.8 million and accounts receivable associated with our product sales and license and other revenue totaled $50.8 million as of June 30, 2026.

As of June 30, 2026, 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.

From program inception through March 31, 2026, we have repurchased Innoviva common stock in the open market for total price of approximately $25.0 million.

From program inception through June 30, 2026, we have repurchased Innoviva common stock in the open market for total price of approximately $56.4 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.

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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.

We believe that our cash and cash equivalents will be sufficient to meet our anticipated debt service and operating needs, as well as 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.

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

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Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Cash Flows from Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2026 was $35.3 million, consisting primarily of our net income of $186.6 million, adjusted for net non-cash items, which included $41.0 million of deferred income taxes, $6.6 million of amortization of acquired intangible assets, $3.5 million of amortization of capitalized fees and depreciation of property and equipment, $2.6 million of stock-based compensation and $1.1 million of inventory fair value step-up adjustments, offset by $191.2 million in net changes in fair value of our investments and $16.3 million in net changes in operating assets and liabilities.

Net cash provided by operating activities for the three months ended March 31, 2025 was $48.6 million, consisting primarily of our net loss of $46.6 million, adjusted for net non-cash items, which included $78.8 million in changes in fair value of our investments, $6.5 million of amortization of acquired intangible assets, $3.5 million of amortization of capitalized fees, $2.1 million of stock-based compensation, $0.2 million of inventory fair value step-up adjustments and $2.9 million in net changes in operating assets and liabilities.

Net cash provided by operating activities for the six months ended June 30, 2026 was $87.3 million, consisting primarily of our net income of $103.2 million, adjusted for net non-cash items, which included $4.9 million of deferred income taxes, $13.2 million of amortization of acquired intangible assets, $7.0 million of amortization of capitalized fees and depreciation of property and equipment, $7.3 million of stock-based compensation and $2.0 million of inventory fair value step-up adjustments, offset by $30.2 million in net changes in fair value of our investments and $22.1 million in net changes in operating assets and liabilities.

Net cash provided by operating activities for the six months ended June 30, 2025 was $92.7 million, consisting primarily of our net income of $17.1 million, adjusted for net non-cash items, which included $54.5 million in changes in fair value of our investments, $13.0 million of amortization of acquired intangible assets, $7.0 million of amortization of

capitalized fees and depreciation of property and equipment, $4.6 million of stock-based compensation and $1.1 million in amortization of debt discount and issuance costs, partially offset by $4.7 million in net changes in operating assets and liabilities.

Cash Flows from Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2026 of $37.0 million primarily consisted of $43.3 million in sales of equity investments managed by ISP Fund LP and $6.7 million in net purchases and sales of other investments managed by ISP Fund LP, partially offset by $10.0 million in purchases of trading securities and $2.5 million in purchases of equity investments managed by ISP Fund LP.

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

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

Net cash used in investing activities for the six months ended June 30, 2026 of $18.3 million primarily consisted of $65.0 million in purchases of trading securities and other equity investments, $3.3 million in purchases of equity investments managed by ISP Fund LP and $0.9 million in purchases of property and equipment, partially offset by $44.1 million in sales of equity investments managed by ISP Fund LP, and $6.7 million in net purchases and sales of other investments managed by ISP Fund LP.

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

Cash Flows from Financing Activities

Net cash used in financing activities for the three months ended March 31, 2026 of $20.1 million was primarily due to $20.2 million in repurchases of our common stock under the ongoing stock repurchase program.

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

Net cash used in financing activities for the six months ended June 30, 2026 of $49.6 million was primarily due to $51.3 million in repurchases of our common stock under the ongoing stock repurchase program, partially offset by net proceeds of $2.0 million from issuances of common stock.

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

Contractual Obligations

As of March 31, 2026, our notes payable obligation comprised of $261.0 million related to our 2028 Notes, which are due in 2028.

As of June 30, 2026, our notes payable obligation comprised of $261.0 million related to our 2028 Notes, which are due in 2028.

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

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

As of March 31, 2026, we have approximately $13.0 million U.S.

As of June 30, 2026, we have approximately $10.3 million U.S.

dollar equivalent in outstanding purchase commitments under the agreement.

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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-Q

Item 2. Management’s Discussion and Analysis