Innoviva, Inc. — Q1 2024 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. Innoviva combines royalties on GSK respiratory products with sales of GIAPREZA, XERAVA and XACDURO, and investments in healthcare companies. Amounts below are U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Total revenue | $77.5 | $76.4; up 1.5% |
| Net royalty revenue | $58.4 | $56.9; up 3% |
| Net product sales | $19.1 | $11.5; up 66% |
| License revenue | None | $8.0 |
| Net income | $36.5 | $34.9 |
| Basic / diluted EPS | $0.58 / $0.46 | $0.51 / $0.42 |
| Operating cash flow | $37.0 | $25.7 |
| Cash and cash equivalents | $178.4 | $193.5 at December 31, 2023 |
| Total assets / stockholders’ equity | $1,267.6 / $703.7 | $1,243.5 / $675.0 at December 31, 2023 |
| Debt | $453.5 principal; $446.8 net carrying value | $453.5 principal at December 31, 2023 |
Net income margin was approximately 47.1%, compared with 45.7% in Q1 2023. Product sales comprised GIAPREZA $12.1 million, XERAVA $4.8 million and XACDURO $2.2 million. Reported product costs were $11.0 million, including $6.8 million of acquired-inventory fair-value step-up amortization.
Current assets were $311.3 million and current liabilities $29.9 million at quarter-end. Cash less debt principal was approximately $275.1 million. The balance sheet also included $151.9 million of equity-method investments and $476.5 million of equity and long-term investments. Cash declined by $15.2 million during the quarter.
Material changes and drivers
- Royalty revenue rose 3%, reflecting higher royalties on RELVAR/BREO and ANORO. GSK reported Q1 net sales of $347.6 million for RELVAR/BREO and $149.7 million for ANORO.
- Product sales increased, with XACDURO contributing $2.2 million following its September 2023 launch. Q1 2023 product sales did not include XACDURO.
- SG&A increased 54% to $30.4 million, attributed to resources shifted from R&D after XACDURO approval and increased sales and marketing. R&D fell 69% to $3.9 million, primarily because XACDURO development activity declined after FDA approval.
- Q1 2023 included $8.0 million of Everest license revenue; there was no license revenue in Q1 2024.
- Fair-value movements materially affected earnings: Innoviva reported a $35.3 million gain from equity-method investments, mainly Armata, and a $13.3 million net loss from equity and long-term investments. The latter included $26.2 million of negative fair-value changes in ISP Fund LP investments, partly offset by gains on other investments.
- Share repurchases were $9.7 million for 634,107 shares at an average $15.24 per share. The company reported completing the remaining program with additional repurchases through April 25, 2024.
Outlook, commentary and risks
- No specific revenue or earnings guidance was provided. Management said cash and cash equivalents should cover anticipated debt service, operating needs and the ongoing repurchase program for at least the next 12 months, based on current plans and forecasts.
- Management expects to submit a zoliflodacin New Drug Application to the FDA in Q1 2025. Reported Phase 3 micro-intent-to-treat cure rates were 90.9% for zoliflodacin and 96.2% for ceftriaxone plus azithromycin; the filing reports a 95% confidence interval of 1.4% to 8.7%. The filing described the candidate as generally well tolerated and reported no deaths or other serious adverse events.
- Revenue remains substantially dependent on GSK’s commercialization of RELVAR/BREO and ANORO. Innoviva also disclosed customer concentration: three customers accounted for 36%, 26% and 24% of product sales, respectively.
- Investment fair values are exposed to market movements and, for Level 3 holdings, significant unobservable valuation assumptions. The filing reported $35.0 million invested in Armata during Q1, including a new secured term loan, and additional investments in Gate and ImaginAb.
- GIAPREZA faces patent litigation following a generic applicant’s ANDA filing. Fact discovery closed March 31, 2024; expert discovery was expected to finish by August 2, 2024. No trial date was set, and Innoviva said a potential loss could not be reasonably estimated; no accrual was recorded.
- Subsequent commitments include an approximately $30.0 million minimum purchase commitment under an April 11, 2024 XACDURO-related supply agreement through 2027, and an April 24 amendment under which Zai Lab will share approximately $8.1 million of certain XACDURO supply-chain costs.
- Debt principal comprises $192.5 million of 2.5% convertible notes due 2025 and $261.0 million of 2.125% convertible notes due 2028. The GIAPREZA royalty financing has a $70.1 million carrying value, a maximum aggregate payment of $225.0 million and a maximum royalty rate that rose to 18% starting in 2024.
Important facts for investors to verify
- Future GSK sales, royalty calculations and the extent of dependence on the two respiratory products.
- Product-sales growth and commercialization costs for GIAPREZA, XERAVA and XACDURO, including distributor and customer concentration.
- Cash generation excluding non-cash investment fair-value gains and losses, and the liquidity implications of debt maturities and committed purchases.
- Armata, ISP Fund LP and other investment valuations, including the effects of market prices and Level 3 assumptions.
- Zoliflodacin regulatory timing and clinical results, and developments in the GIAPREZA generic patent litigation.