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10-Q

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 September 30, 2022

☐ 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)

(650) 238-9600

(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 October 28, 2022 was 69,783,185.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	3

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
Condensed Consolidated Statements of Income for the Three and Nine Months ended September 30, 2022 and 2021	4
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months ended September 30, 2022 and 2021	5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months ended September 30, 2022 and 2021	6
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2022 and 2021	8
Notes to Condensed Consolidated Financial Statements	10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3. Quantitative and Qualitative Disclosures About Market Risk	47

Item 4. Controls and Procedures	48

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	48

Item 1A. Risk Factors	49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3. Defaults Upon Senior Securities	49

Item 4. Mine Safety Disclosure	49

Item 5. Other Information	49

Item 6. Exhibits	50

Signatures	52

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INNOVIVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)


	September 30,			December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	300,789		$	201,525
Short-term marketable securities		282			—
Accounts receivable, net		6,743			—
Receivables from collaboration arrangement		65,606			110,711
Inventory		70,807			—
Prepaid expenses		7,932			1,367
Other current assets		2,432			70
Total current assets		454,591			313,673
Property and equipment, net		165			12
Equity and long-term investments		489,111			483,845
Capitalized fees paid to a related party, net		101,062			111,430
Right-of-use assets		3,679			97
Goodwill		15,995			—
Intangible assets		258,489			—
Deferred tax assets, net		—			17,327
Other assets		4,620			11
Total assets	$	1,327,712		$	926,395
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,805		$	27
Accrued personnel-related expenses		6,473			619
Accrued interest payable		5,702			4,152
Deferred revenue		2,849			—
Convertible subordinated notes due 2023, net of issuance costs		96,131			—
Income tax payable		33,804			—
Other accrued liabilities		15,120			1,009
Total current liabilities		163,884			5,807
Long-term debt, net of discount and issuance costs		443,679			394,653
Other long-term liabilities		78,421			—
Deferred tax liabilities		360			—
Commitments and contingencies (Note 11)
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, 69,776 and 69,566 issued and outstanding as of September 30, 2022 and December 31, 2021 respectively		698			696
Treasury stock: at cost, 32,005 shares as of September 30, 2022 and December 31, 2021, respectively		(393,829	)		(393,829	)
Additional paid-in capital		1,171,096			1,264,024
Accumulated deficit		(136,597	)		(456,148	)
Total Innoviva stockholders’ equity		641,368			414,743
Noncontrolling interest		—			111,192
Total stockholders’ equity		641,368			525,935
Total liabilities and stockholders’ equity	$	1,327,712		$	926,395

See accompanying notes to condensed consolidated financial statements.

INNOVIVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue:
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 September 30, 2022 and 2021, and $10,368 in the nine months ended September 30, 2022 and 2021	$	62,150		$	97,862		$	260,429		$	284,186
Net product sales		5,107			—			5,107			—
Total revenue		67,257			97,862			265,536			284,186
Expenses:
Cost of products sold (inclusive of amortization of inventory fair value adjustments, excluding depreciation and amortization of intangible assets)		3,680			—			3,680			—
Selling, general and administrative		27,810			2,860			46,084			13,074
Research and development		11,725			449			31,447			536
Amortization of acquired intangible assets		1,511			—			1,511			—
Gain on sale of Theravance Respiratory Company, LLC (“TRC”)		(266,696	)		—			(266,696	)		—
Loss on debt extinguishment		—			—			20,662			—
Changes in fair values of equity and long-term investments, net		(130	)		(33,613	)		67,881			(133,973	)
Interest and dividend income		(2,135	)		(453	)		(3,181	)		(503	)
Interest expense		5,096			4,790			11,761			14,229
Other expense (income), net		(28	)		652			750			2,036
Total expenses		(219,167	)		(25,315	)		(86,101	)		(104,601	)
Income before income taxes		286,424			123,177			351,637			388,787
Income tax expense, net		57,077			20,531			63,061			65,600
Net income		229,347			102,646			288,576			323,187
Net income (loss) attributable to noncontrolling interests		(36,176	)		30,208			6,341			67,678
Net income attributable to Innoviva stockholders	$	265,523		$	72,438		$	282,235		$	255,509
Basic net income per share attributable to Innoviva stockholders	$	3.81		$	1.04		$	4.05		$	2.96
Diluted net income per share attributable to Innoviva stockholders	$	2.80		$	0.90		$	3.07		$	2.63
Shares used to compute Innoviva basic and diluted net income per share:
Shares used to compute basic net income per share		69,731			69,458			69,640			86,298
Shares used to compute diluted net income per share		95,830			81,699			95,072			98,536

See accompanying notes to condensed consolidated financial statements.

INNOVIVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022		2021
Net income	$	229,347		$	102,646	$	288,576	$	323,187
Comprehensive income		229,347			102,646		288,576		323,187
Comprehensive income (loss) attributable to noncontrolling interests		(36,176	)		30,208		6,341		67,678
Comprehensive income attributable to Innoviva stockholders	$	265,523		$	72,438	$	282,235	$	255,509

See accompanying notes to condensed consolidated financial statements.

INNOVIVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Nine Months Ended September 30, 2022
					Additional														Total
	Common Stock				Paid-In			Accumulated			Treasury Stock					Noncontrolling			Stockholders’
	Shares		Amount		Capital			Deficit			Shares		Amount			Interest			Equity
Balance as of January 1, 2022		69,566	$	696	$	1,264,024		$	(456,148	)		32,005	$	(393,829	)	$	111,192		$	525,935
Cumulative adjustment due to adoption of ASU 2020-06		—		—		(65,361	)		37,238			—		—			—			(28,123	)
Distributions to noncontrolling interests		—		—		—			—			—		—			(6,507	)		(6,507	)
Fair value of noncontrolling interests in a consolidated variable interest entity		—		—		—			—			—		—			38,471			38,471
Exercise of stock options and issuance of common stock units and stock awards, net of repurchase of shares to satisfy tax withholding		28		—		214			—			—		—			—			214
Stock-based compensation		—		—		620			—			—		—			334			954
Capped call options associated with convertible senior notes due 2028		—		—		(16,585	)		—			—		—			—			(16,585	)
Net income		—		—		—			15,773			—		—			22,085			37,858
Balance as of March 31, 2022		69,594	$	696	$	1,182,912		$	(403,137	)		32,005	$	(393,829	)	$	165,575		$	552,217
Distributions to noncontrolling interests