Innoviva, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unless otherwise noted, financial amounts are in millions of dollars. Innoviva’s principal revenue is royalties from GSK respiratory products RELVAR/BREO, ANORO and TRELEGY, alongside healthcare investments.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 or comparison |
|---|---|---|
| Net royalty revenue | $85.5 | $78.7; up 9% |
| Operating income | $79.5 | $76.1 |
| Net income | $109.7 | $79.0 |
| Net income attributable to Innoviva stockholders | $94.1; $0.93 basic and $0.84 diluted per share | $65.4; $0.65 basic and $0.59 diluted per share |
| Net cash from operating activities | $84.1 | $73.5 |
| Cash and cash equivalents at quarter-end | $282.9 | $246.5 at December 31, 2020 |
| Related-party royalty receivables | $89.0 | $93.9 at December 31, 2020 |
| Net long-term debt carrying value | $387.7 | $385.5 at December 31, 2020 |
Quarter-end total assets were $1,088.3 and stockholders’ equity was $696.7. Debt principal totaled $433.5: $241.0 due in 2023 and $192.5 due in 2025. Current assets were $372.9 versus current liabilities of $3.8. The filing reports equity and long-term investments of $519.3.
Operating income was approximately 92.9% of net royalty revenue, compared with approximately 96.7% a year earlier, calculated from reported figures. The filing does not present this margin as a separate measure.
Material changes versus the prior period
- Royalty revenue rose 9% overall. TRELEGY royalties increased 37% to $22.1; ANORO increased 7% to $10.5; RELVAR/BREO was essentially flat at $56.4.
- GSK-reported product sales were $375.9 for RELVAR/BREO, $161.5 for ANORO and $339.8 for TRELEGY. TRELEGY sales grew 37%, while RELVAR/BREO sales were nearly unchanged.
- Net income increased, with a substantial contribution from $55.0 of gains in fair values of equity and long-term investments, versus $21.9 in Q1 2020. These gains are not royalty revenue or operating cash flow.
- General and administrative expenses rose to $6.0 from $2.6, mainly due to $3.1 of legal and related costs for arbitration involving Theravance Biopharma, Innoviva and TRC.
- Investing activities used $26.4, primarily for investments in Armata and ImaginAb; financing activities used $21.3, primarily for distributions to noncontrolling interests.
Outlook, risks and unusual items
- Management said cash, cash equivalents, marketable securities and projected royalties should cover anticipated debt service and operating needs for at least the next 12 months under current plans. No numerical revenue or earnings guidance was provided.
- Innoviva invested a further $20.0 in Armata during the quarter. Its combined ownership reached approximately 59.6%, but the company stated it does not control Armata and accounts for the investment at fair value. Armata’s stock and warrants were valued at $125.3 at quarter-end.
- Investment fair-value movements create earnings volatility: the quarter’s $55.0 net gain included gains from Armata and ISP Fund LP, partly offset by losses including Entasis. ISP Fund LP investments were subject to a 36-month lock-up from December 11, 2020.
- The main stated business risks include lower-than-expected GSK royalties, product commercialization and competition, and uncertainty around growth strategy and capital deployment. The company reported no material changes to its previously disclosed risk factors.
- In a March 30, 2021 arbitration decision, the arbitrator ruled that Innoviva did not breach its duties by withholding TRC royalties for non-TRELEGY investment opportunities and allowed indemnification of qualifying fees and expenses. Innoviva filed to confirm the award in Delaware Chancery Court on April 15, 2021; the matter remained pending.
- The effective tax rate was 15.2%, compared with 16.8% a year earlier. Interest income fell to $0.03 from $1.3, which management attributed primarily to lower rates during the COVID-19 pandemic.
Important facts for investors to verify
- Whether GSK product sales and royalty trends, especially TRELEGY growth, persist and translate into future royalty receipts.
- How much reported earnings depend on volatile, unrealized investment gains, and the valuation assumptions and liquidity of Innoviva’s investment portfolio.
- Debt repayment and refinancing plans ahead of the 2023 and 2025 maturities, alongside the company’s stated liquidity expectations.
- The status and potential consequences of the court confirmation proceeding related to the TRC arbitration award.
- Whether the arbitration-related legal costs and other investment-related expenses continue to affect operating expenses and cash deployment.