UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of | (I.R.S. Employer |
(Address of Principal Executive Offices)
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act.
Accelerated filer ◻ | ||
Non-accelerated filer ◻ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The number of shares of registrant’s common stock outstanding on July 20, 2020 was
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INNOVIVA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| June 30, |
| December 31, | |||
2020 | 2019 | |||||
(unaudited) | * | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Short-term marketable securities |
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Related party receivables from collaborative arrangements |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Equity investments | | |||||
Capitalized fees paid to a related party, net |
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Deferred tax assets, net | | | ||||
Other assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued personnel-related expenses |
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Accrued interest payable |
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Other accrued liabilities |
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Total current liabilities |
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Long-term debt, net of discount and issuance costs |
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Other long-term liabilities |
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Commitments and contingencies (Note 8) | ||||||
Stockholders’ equity: | ||||||
Preferred stock: $ | | |||||
Common stock: $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Total Innoviva stockholders’ equity | | | ||||
Noncontrolling interest | | | ||||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
* |
See accompanying notes to consolidated financial statements.
3
INNOVIVA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
Royalty revenue from a related party, net of amortization of capitalized fees paid to a related party of $ | $ | | $ | | $ | | $ | | ||||
Revenue from collaborative arrangements with a related party | | | | | ||||||||
Total net revenue | | | | |||||||||
Operating expenses: | ||||||||||||
Research and development | | | | | ||||||||
General and administrative |
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Total operating expenses |
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Income from operations |
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Other income (expense), net |
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Interest income |
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Interest expense |
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Changes in fair values of equity investments | | | | | ||||||||
Income before income taxes | | | | | ||||||||
Income tax expense, net | | | | | ||||||||
Net income | | | | | ||||||||
Net income attributable to noncontrolling interest | | | | | ||||||||
Net income attributable to Innoviva stockholders | $ | | $ | | $ | | $ | | ||||
Basic net income per share attributable to Innoviva stockholders | $ | | $ | | $ | | $ | |||||
Diluted net income per share attributable to Innoviva stockholders | $ | | $ | | $ | | $ | |||||
Shares used to compute Innoviva basic and diluted net income per share: | ||||||||||||
Shares used to compute basic net income per share | | | | | ||||||||
Shares used to compute diluted net income per share | | | | |
See accompanying notes to consolidated financial statements.
4
INNOVIVA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
Net income | $ | $ | | $ | $ | | ||||||
Unrealized gain on marketable securities, net |
| ( |
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Comprehensive income | | | ||||||||||
Comprehensive income attributable to noncontrolling interest | | | ||||||||||
Comprehensive income attributable to Innoviva stockholders | $ | $ | | $ | $ | |
See accompanying notes to consolidated financial statements.
5
INNOVIVA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Six months ended June 30, 2020 | ||||||||||||||||||||
Additional | Accumulated Other | Total | ||||||||||||||||||
Common Stock | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Interest |
| Equity | |||||||
Balance as of December 31, 2019 |
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Distributions to noncontrolling interest |
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Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding |
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Stock-based compensation |
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Net income |
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Other comprehensive income |
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Balance as of March 31, 2020 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Equity activity of noncontrolling interest from a consolidated variable interest entity | | | | | | | | |||||||||||||
Distributions to noncontrolling interest |
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Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding |
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Stock-based compensation |
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Net income |
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Other comprehensive income |
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Balance as of June 30, 2020 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | |
Six months ended June 30, 2019 | ||||||||||||||||||||
Additional | Accumulated Other | Total | ||||||||||||||||||
Common Stock | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||
| Shares | Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Interest |
| Equity | ||||||||
Balance as of December 31, 2018 | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding | | | | | | | | |||||||||||||
Stock-based compensation | | | | | | | | |||||||||||||
Net income | | | | | | | | |||||||||||||
Other comprehensive income | | | | | | | | |||||||||||||
Balance as of March 31, 2019 | | $ | | $ | | $ | | $ | ( | $ | | $ | | |||||||
Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding | | | | | | | | |||||||||||||
Stock-based compensation | | | | | | | | |||||||||||||
Net income | | | | | | | | |||||||||||||
Other comprehensive income | | | | | | | | |||||||||||||
Balance as of June 30, 2019 | | $ | | $ | | $ | | $ | ( | $ | | $ | |
See accompanying notes to consolidated financial statements.
6
INNOVIVA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30, | ||||||
| 2020 |
| 2019 | |||
Cash flows from operating activities | ||||||
Net income | $ | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Deferred income taxes | | |||||
Depreciation and amortization |
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Stock-based compensation |
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Amortization of debt discount and issuance costs | | |||||
Amortization of discount on short-term investments | ( | ( | ||||
Amortization of lease guarantee | ( | ( | ||||
Changes in fair values of equity investments | ( | | ||||
Other non-cash items | | |||||
Changes in operating assets and liabilities: | ||||||
Receivables from collaborative arrangements |
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Prepaid expenses and other current assets |
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Accounts payable |
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Accrued personnel-related expenses and other accrued liabilities |
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Accrued interest payable |
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Operating lease liability | | ( | ||||
Net cash provided by operating activities |
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Cash flows from investing activities | ||||||
Maturities of marketable securities |
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Purchases of marketable securities |
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Purchases of equity investments | ( | | ||||
Purchases of property and equipment | ( | | ||||
Net cash provided by (used in) investing activities |
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Cash flows from financing activities | ||||||
Repurchase of shares to satisfy tax withholding | ( | ( | ||||
Payments of cash dividends to stockholders | | ( | ||||
Proceeds from issuances of common stock, net | | | ||||
Net proceeds from the issuance of variable interest entity's equity | | | ||||
Distributions to noncontrolling interest | ( | | ||||
Net cash provided by (used in) financing activities |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information | ||||||
Cash paid for interest | $ | | $ | |
See accompanying notes to consolidated financial statements.
7
INNOVIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Operations and Summary of Significant Accounting Policies
Description of Operations
Innoviva Inc. (referred to as "Innoviva", the "Company", or "we" and other similar pronouns) is a company with a portfolio of royalties that include respiratory assets partnered with Glaxo Group Limited (“GSK”), including RELVAR®/BREO® ELLIPTA® (fluticasone furoate/ vilanterol, “FF/VI”), ANORO® ELLIPTA® (umeclidinium bromide/ vilanterol, “UMEC/VI”) and TRELEGY® ELLIPTA® (the combination FF/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:
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In our opinion, the unaudited consolidated financial statements have been prepared on the same basis as audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of our financial position, results of operations, comprehensive income and cash flows. The interim results are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2020 or any other period.
The accompanying unaudited consolidated financial statements include the accounts of Innoviva and certain variable interest entities for which we are the primary beneficiary. All intercompany transactions have been eliminated. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interest in our unaudited consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 19, 2020, and as amended on February 21, 2020 (“2019 Form 10-K”).
Variable Interest Entities
We evaluate our ownership, contractual and other interest in the entities that we invest in to determine if they are variable interest entities (“VIEs”), whether we have a variable interest in those entities and the nature and extent of those interests. Based on our evaluation, if we determine we are the primary beneficiary of a VIE, we consolidate the entity’s financial results into our financial statements.
We consolidate the financial results of TRC and Pulmoquine Therapeutics, Inc. (“Pulmoquine”), which we have determined to be VIEs, because we have the power to direct the economically significant activities of these entities and the obligation to absorb losses of, or the right to receive benefits from them, and we are the primary beneficiary of the entities.
8
Equity Investments
We invest from time to time in equity securities of private or public companies. If we determine that we do not have control over these companies under either voting or VIE models, we then determine if we have an ability to exercise significant influence via voting interests, board representation or other business relationships. We may account for the equity investments where we exercise significant influence using either an equity method of accounting or at fair value by electing the fair value option under Accounting Standards Codification ("ASC") Topic 825, Financial Instruments. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method, we apply it to all our financial interests in the same entity (equity and debt, including guarantees) that are eligible items. All gains and losses from fair value changes, unrealized and realized, are presented as changes in fair values of equity investments, net on the consolidated statements of income.
If we conclude that we do not have an ability to exercise significant influence over an investee, we may elect to account for an equity security without a readily determinable fair value at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
As of June 30, 2020, we accounted for our equity investments in common stock and warrants of Armata Pharmaceuticals, Inc. (NYSE American: ARMP) (“Armata ") and Entasis Therapeutics Holdings Inc. (NASDAQ: ETTX) ("Entasis”) at fair value by electing the fair value option and presented the investments as equity investments on the consolidated balance sheets.
Accounting Pronouncement Adopted by the Company
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as clarified in subsequent amendments to the initial guidance (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecast. ASC 326 must be adopted using a modified retrospective approach with a cumulative effect adjustment as of the beginning of the reporting period in which the guidance is adopted. Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We adopted Topic 326 effective January 1, 2020. The adoption did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards or Updates Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We are currently in the process of evaluating the effects of the provisions of ASU 2019-12 on our financial statements.
2. Net Income Per Share
Basic net income per share attributable to Innoviva stockholders is computed by dividing net income attributable to Innoviva stockholders by the weighted-average number of shares of common stock outstanding. Diluted net income per share attributable to Innoviva stockholders is computed by dividing net income attributable to Innoviva stockholders by the weighted-average number of shares of common stock and dilutive potential common stock equivalents then outstanding. Dilutive potential common stock equivalents include the assumed exercise, vesting and issuance of employee stock awards using the treasury stock method, as well as common stock issuable upon assumed conversion of our convertible subordinated notes due 2023 (the “2023 Notes”) using the if converted method.
Our convertible senior notes due 2025 (the “2025 Notes”) are convertible, based on the applicable conversion rate, into cash, shares of our common stock or a combination thereof, at our election. Our current intent is to settle the principal amount of the 2025 Notes in cash upon conversion. The impact of the assumed conversion premium to diluted net income per share is computed using the treasury stock method. As the average market price per share of our common stock as reported on The Nasdaq Global Select Market was lower than the initial conversion price of $
9
The following table shows the computation of basic and diluted net income per share for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(In thousands except per share data) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Numerator: | ||||||||||||
Net income attributable to Innoviva stockholders, basic | $ | $ | | $ | $ | | ||||||
Add: interest expense on 2023 Notes | | | ||||||||||
Net income attributable to Innoviva stockholders, diluted | $ | $ | | $ | $ | | ||||||
Denominator: | ||||||||||||
Weighted-average shares used to compute basic net income per share attributable to Innoviva stockholders |
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Dilutive effect of 2023 Notes | | | ||||||||||
Dilutive effect of options and awards granted under equity incentive plan and employee stock purchase plan | | | ||||||||||
Weighted-average shares used to compute diluted net income per share attributable to Innoviva stockholders |
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Net income per share attributable to Innoviva stockholders | ||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | |
Anti-Dilutive Securities
The following common stock equivalents were not included in the computation of diluted net income per share because their effect was anti-dilutive:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
Outstanding options and awards granted under equity incentive plan and employee stock purchase plan |
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3. Revenue Recognition and Collaborative Arrangements
Net Revenue from Collaborative Arrangements
Net revenue recognized under our GSK Agreements was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Royalties from a related party - RELVAR/BREO | $ | $ | | $ | $ | | ||||||
Royalties from a related party - ANORO | | | ||||||||||
Royalties from a related party - TRELEGY | | | ||||||||||
Total royalties from a related party | | | ||||||||||
Less: amortization of capitalized fees paid to a related party |
| ( |
| ( |
| ( |
| ( | ||||
Royalty revenue | | | ||||||||||
Strategic alliance - MABA program | | | ||||||||||
Total net revenue from GSK | $ | $ | | $ | $ | |
During the three months ended June 30, 2020, we recognized $
10
4. Consolidated Entities
Theravance Respiratory Company, LLC
As of June 30, 2020, and December 31, 2019, $
Pulmoquine Therapeutics, Inc.
On April 20, 2020, we entered into a securities purchase agreement with Pulmoquine to purchase
5. Financial Instruments and Fair Value Measurements
Equity Investment in Armata
On January 27, 2020, we entered into a securities purchase agreement to acquire
The investment was closed in
The investment provides Innoviva the ability to have significant influence, but not control over Armata’s operations. Based on our evaluation, we determined that Armata is a VIE, but Innoviva is not the primary beneficiary of the VIE. We elected the fair value option to account for both Armata’s common stock and warrants at fair value. The fair value of Armata’s common stock is measured based on its closing market price. The warrants have an exercise price of $
As of June 30, 2020, the fair values of Armata’s common stock and warrants were estimated at $
11
Equity Investment in Entasis
On April 12, 2020, we entered into a securities purchase agreement with Entasis to purchase
The investment was closed in
The investment provides Innoviva the ability to have significant influence, but not control, over Entasis's operations. Based on our evaluation, we determined that Entasis is a VIE, but Innoviva is not the primary beneficiary of the VIE. We elected the fair value option to account for both Entasis's common stock and warrants at fair value. The fair value of Entasis's common stock is measured based on its closing market price at each balance sheet date. The warrants have an exercise price of $
As of June 30, 2020, the fair values of Entasis's common stock and warrants were estimated at $
Available-for-Sale Securities
The estimated fair value of available-for-sale securities is based on quoted market prices for these or similar investments that were based on prices obtained from a commercial pricing service. Available-for-sale securities are summarized below:
June 30, 2020 | ||||||||||||
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| Gross |
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Unrealized | Unrealized | Estimated | ||||||||||
(In thousands) | Amortized Cost | Gains | Losses | Fair Value | ||||||||
U.S. government securities | $ | $ | $ | | $ | |||||||
Money market funds |
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Total | $ | $ | $ | | $ |
December 31, 2019 | ||||||||||||
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| Gross |
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Unrealized | Unrealized | Estimated | ||||||||||
(In thousands) | Amortized Cost | Gains | Losses | Fair Value | ||||||||
U.S. government securities | $ | | $ | | $ | | $ | | ||||
U.S. commercial paper |
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Money market funds |
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Total | $ | | $ | | $ | | $ | |
As of June 30, 2020, all of the available-for-sale debt securities had contractual maturities within
12
Fair Value Measurements
Our available-for-sale securities and equity investments are measured at fair value on a recurring basis and our debt is carried at amortized cost basis. The estimated fair values were as follows:
Estimated Fair Value Measurements as of June 30, 2020 Using: | ||||||||||||
Quoted Price in | ||||||||||||
Active Markets | Significant Other | Significant | ||||||||||
for Identical | Observable | Unobservable |