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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

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: 000-30319

INNOVIVA, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

94-3265960

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

1350 Old Bayshore Highway Suite 400

Burlingame, CA 94010

(Address of Principal Executive Offices)

(650238-9600

(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

Common Stock, par value $0.01 per share

INVA

The NASDAQ Global Select Market

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.  Yes    No  

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).  Yes    No  

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.

Large accelerated filer 

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    No  

The number of shares of registrant’s common stock outstanding on July 19, 2021 was 69,494,582.

Table of Contents

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020

3

Unaudited Consolidated Statements of Income for the Three and Six Months ended June 30, 2021 and 2020

4

Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months ended June 30, 2021 and 2020

5

Unaudited Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2021 and 2020

6

Unaudited Consolidated Statements of Cash Flows for the Six Months ended June 30, 2021 and 2020

8

Notes to Unaudited Consolidated Financial Statements

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

26

Item 4. Controls and Procedures

27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

27

Item 1A. Risk Factors

28

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3. Defaults Upon Senior Securities

28

Item 4. Mine Safety Disclosure

28

Item 5. Other Information

28

Item 6. Exhibits

29

Signatures

30

Exhibits

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INNOVIVA, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

June 30, 

December 31, 

    

2021

    

2020

(unaudited)

*

Assets

Current assets:

Cash and cash equivalents

$

43,265

$

246,487

Related party receivables from collaborative arrangements

 

104,262

 

93,931

Prepaid expenses and other current assets

 

734

 

1,640

Total current assets

 

148,261

 

342,058

Property and equipment, net

 

19

 

28

Equity and long-term investments

473,677

438,258

Capitalized fees paid to a related party, net

 

118,341

 

125,253

Deferred tax assets, net

48,690

93,759

Other assets

 

162

 

214

Total assets

$

789,150

$

999,570

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

30

$

66

Accrued personnel-related expenses

 

389

 

490

Accrued interest payable

 

4,152

 

4,152

Other accrued liabilities

 

800

 

1,402

Total current liabilities

 

5,371

 

6,110

Long-term debt, net of discount and issuance costs

 

389,989

 

385,517

Other long-term liabilities

45

106

Commitments and contingencies (Note 8)

Stockholders’ equity:

Preferred stock: $0.01 par value, 230 shares authorized, no shares issued and outstanding

 

 

Common stock: $0.01 par value, 200,000 shares authorized, 69,495 and 101,392 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

695

 

1,014

Treasury stock: at cost, 32,005 and 0 shares at June 30, 2021 and December 31, 2020, respectively

(393,829)

Additional paid-in capital

 

1,261,845

 

1,260,900

Accumulated deficit

 

(538,931)

 

(722,002)

Total Innoviva stockholders’ equity

329,780

539,912

Noncontrolling interest

63,965

67,925

Total stockholders’ equity

 

393,745

 

607,837

Total liabilities and stockholders’ equity

$

789,150

$

999,570

*Consolidated balance sheet as of December 31, 2020 has been derived from audited consolidated financial statements.

See accompanying notes to consolidated financial statements.

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INNOVIVA, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Royalty revenue from a related party, net of amortization of capitalized fees paid to a related party of $3,456 in the three months ended June 30, 2021 and 2020, and $6,912 in the six months ended June 30, 2021 and 2020

$

100,806

$

68,946

$

186,324

$

147,624

Revenue from collaborative arrangements with a related party

10,000

10,000

Total net revenue

100,806

78,946

186,324

157,624

Operating expenses:

Research and development

 

38

 

559

 

87

 

559

General and administrative

 

4,228

 

2,596

 

10,214

 

5,159

Total operating expenses

 

4,266

 

3,155

 

10,301

 

5,718

Income from operations

 

96,540

 

75,791

 

176,023

 

151,906

Other income (expense), net

(951)

30

(1,384)

98

Interest income

 

20

 

158

 

50

 

1,460

Interest expense

 

(4,745)

 

(4,561)

 

(9,439)

 

(9,077)

Changes in fair values of equity and long-term investments, net

45,315

46,698

100,360

68,613

Income before income taxes

136,179

118,116

265,610

213,000

Income tax expense, net

25,333

19,891

45,069

35,823

Net income

110,846

98,225

220,541

177,177

Net income attributable to noncontrolling interest

21,898

21,381

37,470

34,896

Net income attributable to Innoviva stockholders

$

88,948

$

76,844

$

183,071

$

142,281

Basic net income per share attributable to Innoviva stockholders

$

1.01

$

0.76

$

1.93

$

1.40

Diluted net income per share attributable to Innoviva stockholders

$

0.90

$

0.69

$

1.73

$

1.27

Shares used to compute Innoviva basic and diluted net income per share:

Shares used to compute basic net income per share

88,423

101,324

94,858

101,280

Shares used to compute diluted net income per share

100,639

113,545

107,096

113,527

See accompanying notes to consolidated financial statements.

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INNOVIVA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Net income

$

110,846

$

98,225

$

220,541

$

177,177

Unrealized loss on marketable securities, net

(35)

(29)

Comprehensive income

110,846

98,190

220,541

177,148

Comprehensive income attributable to noncontrolling interest

21,898

21,381

37,470

34,896

Comprehensive income attributable to Innoviva stockholders

$

88,948

$

76,809

$

183,071

$

142,252

See accompanying notes to consolidated financial statements.

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INNOVIVA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

Six Months ended June 30, 2021

Additional

Accumulated Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Treasury Stock

Noncontrolling

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

Shares

Amount

    

Interest

    

Equity

Balance as of December 31, 2020

 

101,392

$

1,014

$

1,260,900

$

$

(722,002)

$

$

67,925

$

607,837

Distributions to noncontrolling interest

 

 

 

 

 

 

(21,285)

 

(21,285)

Equity activity of noncontrolling interest from a consolidated variable interest entity

8

8

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

 

16

 

 

(25)

 

 

 

 

(25)

Stock-based compensation

 

 

 

451

 

 

 

 

451

Net income

 

 

 

 

 

94,123

 

15,572

 

109,695

Balance as of March 31, 2021

 

101,408

$

1,014

$

1,261,326

$

$

(627,879)

$

$

62,220

$

696,681

Distributions to noncontrolling interest

 

 

 

 

 

 

(20,161)

 

(20,161)

Equity activity of noncontrolling interest from a consolidated variable interest entity

8

8

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

 

92

 

1

 

49

 

 

 

 

50

Repurchase of common stock

(32,005)

(320)

32,005

(393,829)

(394,149)

Stock-based compensation

 

 

 

470

 

 

 

 

470

Net income

 

 

 

 

 

88,948

 

21,898

 

110,846

Balance as of June 30, 2021

 

69,495

$

695

$

1,261,845

$

$

(538,931)

32,005

$

(393,829)

$

63,965

$

393,745

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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

101,288

$

1,013

$

1,258,859

$

27

$

(946,404)

$

28,621

$

342,116

Distributions to noncontrolling interest

(15,810)

(15,810)

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

32

170

170

Stock-based compensation

435

435

Net income

65,437

13,515

78,952

Other comprehensive income

6

6

Balance as of March 31, 2020

101,320

$

1,013

$

1,259,464

$

33

$

(880,967)

$

26,326

$

405,869

Equity activity of noncontrolling interest from a consolidated variable interest entity

350

350

Distributions to noncontrolling interest

(12,152)

(12,152)

Exercise of stock options, and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding

72

2

178

180

Stock-based compensation

375

375

Net income

76,844

21,381

98,225

Other comprehensive income

(35)

(35)

Balance as of June 30, 2020

101,392

$

1,015

$

1,260,017

$

(2)

$

(804,123)

$

35,905

$

492,812

See accompanying notes to consolidated financial statements.

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INNOVIVA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended June 30, 

    

2021

    

2020

Cash flows from operating activities

Net income

$

220,541

$

177,177

Adjustments to reconcile net income to net cash provided by operating activities:

Deferred income taxes

45,069

35,823

Depreciation and amortization

 

6,918

 

6,921

Stock-based compensation

 

921

 

810

Amortization of debt discount and issuance costs

4,472

4,110

Amortization of discount on short-term investments

(336)

Amortization of lease guarantee

(135)

Changes in fair values of equity and long-term investments, net

(99,046)

(68,613)

Other non-cash items

16

6

Changes in operating assets and liabilities:

Receivables from collaborative arrangements

 

(10,331)

 

(2,975)

Prepaid expenses and other current assets

 

906

 

317

Accounts payable

 

(36)

 

185

Accrued personnel-related expenses and other accrued liabilities

 

(709)

 

(15)

Net cash provided by operating activities

 

168,721

153,275

Cash flows from investing activities

Maturities of marketable securities

 

 

82,000

Purchases of marketable securities

 

 

(12,943)

Purchases of equity and long-term investments

 

(46,373)

 

(60,000)

Distributions of equity and long-term investments

110,000

Purchases of property and equipment

 

 

(13)

Net cash provided by investing activities

 

63,627

 

9,044

Cash flows from financing activities

Repurchase of common stock

(394,149)

Distributions to noncontrolling interest

(41,446)

(27,962)

Repurchase of shares to satisfy tax withholding

(35)

(72)

Proceeds from issuances of common stock, net

60

422

Net proceeds from the issuance of variable interest entity’s equity

344

Net cash used in financing activities

 

(435,570)

 

(27,268)

Net increase (decrease) in cash and cash equivalents

 

(203,222)

 

135,051

Cash and cash equivalents at beginning of period

 

246,487

 

278,096

Cash and cash equivalents at end of period

$

43,265

$

413,147

Supplemental disclosure of cash flow information

Cash paid for interest

$

4,967

$

4,967

See accompanying notes to consolidated financial statements

.

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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 and other healthcare assets. Our royalty portfolio contains 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: 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%. Innoviva is also entitled to 15% of royalty payments made by GSK under its agreements originally entered into with us, and since assigned to Theravance Respiratory Company, LLC (“TRC”), including TRELEGY® ELLIPTA® and any other product or combination of products that may be discovered or developed in the future under the LABA Collaboration Agreement and the Strategic Alliance Agreement with GSK (referred to herein as the “GSK Agreements”), which have been assigned to TRC other than RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®.

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, 2021 or any other period.

The accompanying unaudited consolidated financial statements include the accounts of Innoviva, our wholly-owned subsidiaries and certain variable interest entities for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. 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, 2020 filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021 (“2020 Form 10-K”).

Variable Interest Entities

We evaluate our ownership, contractual and other interest in entities to determine if they are variable interest entities (“VIE”). We evaluate 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 in our financial statements.

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Equity Investments

We invest from time to time in equity securities of private or public companies. If we determine that we have control over these companies under either voting or VIE models, we include them in our consolidated financial statements. 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 and long-term 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 using the measurement alternative described in ASC Topic 825. This measurement alternative allows us to measure the equity investment 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.

Accounting Pronouncement Adopted by the Company

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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 adopted ASU 2019-12 effective January 1, 2021. The adoption did not have a material impact on our consolidated financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements. This ASU improves the codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the disclosure section of the codification. The ASU also clarifies various topics in the codification so that entities can apply guidance more consistently. The ASU is effective for fiscal years beginning after December 15, 2020. We adopted ASU 2020-10 effective January 1, 2021. The adoption did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards or Updates Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20 for convertible instruments. The ASU is effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years with early adoption permitted. We are currently in the process of evaluating the effects of the provisions of ASU 2020-06 on our consolidated 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.

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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 $17.26 per share, there was no dilutive effect of the assumed conversion premium for the three and six months ended June 30, 2021 and 2020, respectively.

The following table shows the computation of basic and diluted net income per share for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, 

Six Months Ended June 30, 

(In thousands except per share data)

     

2021

     

2020

     

2021

     

2020

Numerator:

Net income attributable to Innoviva stockholders, basic

$

88,948

$

76,844

 

$

183,071

 

$

142,281

Add: interest expense on 2023 Notes

 

1,163

 

1,184

 

2,367

 

2,364

Net income attributable to Innoviva stockholders, diluted

$

90,111

$

78,028

 

$

185,438

 

$

144,645

Denominator:

Weighted-average shares used to compute basic net income per share attributable to Innoviva stockholders

 

88,423

 

101,324

 

94,858

 

101,280

Dilutive effect of 2023 Notes

 

12,189

 

12,189

 

12,189

 

12,189

Dilutive effect of options and awards granted under equity incentive plan and employee stock purchase plan

 

27

 

32

 

49

 

58

Weighted-average shares used to compute diluted net income per share attributable to Innoviva stockholders

 

100,639

 

113,545

 

107,096

 

113,527

Net income per share attributable to Innoviva stockholders

Basic

$

1.01

$

0.76

 

$

1.93

 

$

1.40

Diluted

$

0.90

$

0.69

 

$

1.73

 

$

1.27

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)

    

2021

    

2020

    

2021

    

2020

Outstanding options and awards granted under equity incentive plan and employee stock purchase plan

1,093

 

1,154

1,126

 

1,124

3. Revenue Recognition and Collaborative Arrangements

We recognize royalty revenue on net sales of products with respect to which we have contractual royalty rights in the period in which the royalties are earned and reported to us. Royalties, which may include adjustments of estimates of net sales in prior periods, are recognized net of amortization of capitalized fees associated with any approval and launch milestone payments made to GSK.

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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)

    

2021

    

2020

    

2021

    

2020

Royalties from a related party - RELVAR/BREO

$

65,916

$

45,570

$

122,306

$

101,719

Royalties from a related party - ANORO

 

11,960

 

11,199

 

22,460

 

21,049

Royalties from a related party - TRELEGY

26,386

15,633

48,470

31,768

Total royalties from a related party

 

104,262

 

72,402

 

193,236

 

154,536

Less: amortization of capitalized fees paid to a related party

 

(3,456)

 

(3,456)

 

(6,912)

 

(6,912)

Royalty revenue