Market Overview

Innoviva Reports Second Quarter 2018 Financial Results

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  • Total net revenue rose 14.6% to $67.1 million compared with the second
    quarter of 2017.
  • Net income attributable to Innoviva stockholders increased 55.4% from
    the second quarter of 2017 to $54.6 million, or $0.49 per diluted
    share.
  • The Company intends to prepay $110 million of its Term B Loan.

Innoviva, Inc. (NASDAQ:INVA) (the Company) today reported financial
results for the second quarter ended June 30, 2018.

  • Gross royalty revenues from Glaxo Group Limited (GSK) for the second
    quarter of 2018 included royalties of $57.5 million from global net
    sales of RELVAR®/BREO® ELLIPTA®,
    royalties of $10.7 million from global net sales of ANORO®
    ELLIPTA® and $2.4 million from global net sales of TRELEGY®
    ELLIPTA®.1
  • Total operating expenses for the second quarter of 2018 were $4.4
    million compared with $10.7 million in the second quarter of 2017
    (which included $4.3 million in proxy contest and related legal
    costs). Total non-cash operating expenses for the second quarter of
    2018 included $1.5 million in stock-based compensation compared to
    $2.4 million in stock-based compensation for the second quarter of
    2017.
  • Net income attributable to Innoviva stockholders in the second quarter
    of 2018 was $54.6 million (or $0.49 per diluted share), up 55.4% from
    the second quarter of 2017.
  • Net cash and cash equivalents, short-term investments and marketable
    securities totaled $107.5 million, and royalties receivable from GSK
    totaled $70.5 million as of June 30, 2018.

Geoffrey Hulme, interim Principal Executive Officer, stated: "RELVAR®/BREO®
ELLIPTA® and ANORO® ELLIPTA® continued
to achieve record TRx market share in the U.S., reaching 21.3% and 18.3%
at the end of the second quarter of 2018, respectively, despite second
quarter U.S. net sales being unfavorably impacted by payer rebate
adjustments related to prior periods. In addition, REVLAR®/BREO®
ELLIPTA® and ANORO® ELLIPTA® continued
their strong product sales growth in non-US markets. Meanwhile, this
quarter we continued to streamline operations and reduce operating
costs. The Company's newly elected board of directors and the management
team remain focused on pursuing opportunities to maximize shareholder
value."

"Innoviva's royalty-based financial model produced another quarter of
strong cash flow generation. We believe a significant reduction in the
balance of our Term B loan, which should meaningfully lower future
interest expense, is the best use of our cash at this time."

Recent Highlights

  • GSK Net Sales:
    • Second quarter 2018 net sales of RELVAR®/BREO®
      ELLIPTA® by GSK were $383.3 million, up 5.3% from
      $364.3 million in the second quarter of 2017, with $208.6 million
      in net sales from the U.S. market and $174.7 million from non-U.S.
      markets.
    • Second quarter 2018 net sales of ANORO® ELLIPTA® by
      GSK were $163.9 million, up 49.0% from $110.0 million in the
      second quarter of 2017, with $111.8 million net sales from the
      U.S. market and $52.1 million from non-U.S. markets.
    • Second quarter 2018 net sales of TRELEGY® ELLIPTA® by
      GSK were $36.5 million. TRELEGY® ELLIPTA® was
      approved in September 2017.
  • Product Updates:
    • GSK announced in April 2018 the expanded label indication in the
      U.S. for TRELEGY® ELLIPTA® in patients with
      COPD.

1 For TRELEGY ® ELLIPTA®, Innoviva is
entitled to 15% of royalty payments made by GSK that are assigned to
TRC, LLC.

About Innoviva

Innoviva, Inc. (referred to as "Innoviva", the "Company", or "we" and
other similar pronouns) is focused on royalty management. Innoviva's
portfolio includes the 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 eligible to
receive the associated royalty revenues from RELVAR®/BREO®
ELLIPTA® and ANORO® ELLIPTA®. 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"), relating to TRELEGY®
ELLIPTA® and any other product or combination of products
that may be discovered and 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®.

ANORO®, RELVAR®, BREO®, TRELEGY®
and ELLIPTA® are trademarks of the GlaxoSmithKline group of
companies.

Forward Looking Statements

This press release contains certain "forward-looking" statements as that
term is defined in the Private Securities Litigation Reform Act of 1995
regarding, among other things, statements relating to goals, plans,
objectives and future events. Innoviva intends such forward-looking
statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act of
1995. The words "anticipate", "expect", "goal", "intend", "objective",
"opportunity", "plan", "potential", "target" and similar expressions are
intended to identify such forward-looking statements. Such
forward-looking statements involve substantial risks, uncertainties and
assumptions. These statements are based on the current estimates and
assumptions of the management of Innoviva as of the date of this press
release and are subject to known and unknown risks, uncertainties,
changes in circumstances, assumptions and other factors that may cause
the actual results of Innoviva to be materially different from those
reflected in the forward-looking statements. Important factors that
could cause actual results to differ materially from those indicated by
such forward-looking statements include, among others, risks related to:
expected cost savings; lower than expected future royalty revenue from
respiratory products partnered with GSK; the commercialization of RELVAR®/BREO®
ELLIPTA®, ANORO® ELLIPTA® and TRELEGY®
ELLIPTA® in the jurisdictions in which these products have
been approved; the strategies, plans and objectives of Innoviva
(including Innoviva's growth strategy and corporate development
initiatives beyond the existing respiratory portfolio); the timing,
manner, amount and planned growth of anticipated potential capital
returns to shareholders; the status and timing of clinical studies, data
analysis and communication of results; the potential benefits and
mechanisms of action of product candidates; expectations for product
candidates through development and commercialization; the timing of
regulatory approval of product candidates; and projections of revenue,
expenses and other financial items. Other risks affecting Innoviva are
described under the headings "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained
in Innoviva's Annual Report on Form 10-K for the year ended December 31,
2017 and Innoviva's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2018, which are on file with the Securities and Exchange
Commission ("SEC") and available on the SEC's website at www.sec.gov.
Additional factors may be described in those sections of Innoviva's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, to be
filed with the SEC in the third quarter of 2018. Past performance is not
necessarily indicative of future results. No forward-looking statements
can be guaranteed and actual results may differ materially from such
statements. Given these uncertainties, you should not place undue
reliance on these forward-looking statements. The information in this
press release is provided only as of the date hereof, and Innoviva
assumes no obligation to update its forward-looking statements on
account of new information, future events or otherwise, except as
required by law.

       
INNOVIVA, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenue:
Royalty revenue from a related party, net $ 67,086 $ 58,341 $ 119,466 $ 98,612
Revenue from collaborative arrangements from a related party   -     221     -     442  
Total net revenue (1) 67,086 58,562 119,466 99,054
 
Operating expenses:
Research and development - 348 - 702
General and administrative 4,411 6,077 10,222 12,635
General and administrative - proxy contest and litigation costs - 4,307 - 8,544
General and administrative - cash severance expenses - - 3,174 -
General and administrative - related party   -     -     2,700     -  
Total operating expenses   4,411     10,732     16,096     21,881  
 
Income from operations 62,675 47,830 103,370 77,173
 
Other income (expense), net 39 (786 ) (3,060 ) (739 )
Interest income 380 306 771 542
Interest expense   (6,478 )   (12,204 )   (14,135 )   (24,985 )
Net income 56,616 35,146 86,946 51,991
Net income attributable to noncontrolling interest   1,990     -     2,739     -  
Net income attributable to Innoviva stockholders $ 54,626   $ 35,146   $ 84,207   $ 51,991  
 
Basic net income per share attributable to Innoviva stockholders $ 0.54 $ 0.33 $ 0.84 $ 0.48
Diluted net income per share attributable to Innoviva stockholders $ 0.49 $ 0.30 $ 0.77 $ 0.46
 
Shares used to compute basic net income per share 100,873 107,614 100,739 107,468
Shares used to compute diluted net income per share 113,399 120,463 113,483 120,317
 
 
(1) Total net revenue is comprised of the following (in thousands):
       
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
(unaudited) (unaudited)
 
Royalties from a related party $ 70,542 $ 61,797 $ 126,378 $ 105,524
Amortization of capitalized fees paid to a related party   (3,456 )   (3,456 )   (6,912 )   (6,912 )
Royalty revenue 67,086 58,341 119,466 98,612
Strategic alliance - MABA program license   -     221     -     442  
Total net revenue $ 67,086   $ 58,562   $ 119,466   $ 99,054  
 
       
INNOVIVA, INC.
Condensed Consolidated Balance Sheets
(in thousands)
 
June 30, December 31,
2018 2017
(unaudited)

(1)

 
Assets
Cash, cash equivalents and marketable securities $ 107,542 $ 129,075
Other current assets 71,118 71,294
Property and equipment, net 185 209
Capitalized fees paid to a related party, net 159,810 166,722
Other assets   37     37  
Total assets $ 338,692   $ 367,337  
 
 
Liabilities and stockholders' deficit
Other current liabilities $ 1,662 $ 3,822
Accrued interest payable 5,115 5,920
Convertible subordinated notes, net 238,392 238,123
Convertible senior notes, net 127,381 124,158
Senior secured term loans, net 120,754 237,081
Other long-term liabilities 752 940
 
Innoviva stockholders' deficit (157,356 ) (242,859 )
Noncontrolling interest   1,992     152  
 
Total liabilities and stockholders' deficit $ 338,692   $ 367,337  
 

(1) The selected consolidated balance sheet amounts at December
31, 2017 are derived from audited financial statements.

 

         
INNOVIVA, INC.
Cash Flows Summary
(in thousands)
 
Six Months Ended
June 30,
2018 2017
(unaudited)
Net cash provided by operating activities $ 101,639 $ 50,400
Net cash provided by investing activities 35,591 24,418
Net cash used in financing activities (123,340 ) (65,200 )
 

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