Innoviva, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited. Innoviva operates a royalty portfolio and a hospital/infectious-disease business, including GIAPREZA and XERAVA, following its 2022 acquisitions of Entasis and La Jolla. Comparisons are affected by those acquisitions and the 2022 sale of its TRC interest.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $76.4 million | $90.1 million |
| Net income | $34.9 million | $37.9 million |
| Net income attributable to Innoviva stockholders | $34.9 million | $15.8 million |
| Basic / diluted EPS | $0.51 / $0.42 | $0.23 / $0.20 |
| Net cash provided by operating activities | $25.7 million | $98.1 million |
Revenue mix: Net royalty revenue was $56.9 million, net product sales were $11.5 million (GIAPREZA $9.0 million; XERAVA $2.5 million), and license revenue was $8.0 million. The Everest regulatory milestone generated the license revenue; related license cost was $1.6 million. The filing does not present a single operating-margin measure.
Balance sheet and cash: Cash and cash equivalents were $144.0 million at March 31, down from $291.0 million at year-end. Current assets were $296.4 million and current liabilities $38.1 million. Accounts receivable was $15.5 million and collaboration receivables $60.3 million. Equity-method investments were $55.0 million; equity and long-term investments were $400.9 million.
Debt and obligations: Innoviva repaid the remaining $96.2 million principal of its 2023 Notes at maturity in January. At quarter-end, debt principal totaled $453.5 million ($192.5 million of 2.5% notes due 2025 and $261.0 million of 2.125% notes due 2028); net carrying value was $444.7 million. Debt bears fixed rates. The GIAPREZA-related deferred royalty obligation was $70.3 million. Operating lease liabilities totaled $3.4 million.
Margins, taxes, and unusual items: Income tax expense was $6.3 million and the effective tax rate was 15.3%. Results included a $15.8 million fair-value gain on equity-method investments, primarily associated with Armata, partly offset by $2.2 million of fair-value losses on other equity and long-term investments. Product costs included $6.8 million of acquired-inventory fair-value step-up amortization. Interest expense was $4.4 million, up 47% year over year.
Cash flow: Investing activities used $35.7 million, principally for equity and long-term investments. Financing activities used $137.0 million, mainly to repay the 2023 Notes and repurchase shares. Cash declined by $147.0 million during the quarter. Management stated that available cash should cover anticipated debt service, operations, and the ongoing repurchase program for at least 12 months, based on current plans and forecasts.
Material changes versus the prior period
- Net royalty revenue declined 37% to $56.9 million. The primary factor was the July 2022 sale of Innoviva’s 15% TRC interest, which ended its TRELEGY royalty entitlement; TRELEGY contributed $29.3 million in Q1 2022 and none in Q1 2023. RELVAR/BREO royalties fell 9% to $50.9 million, which management attributed to U.S. pricing pressure and foreign-exchange movements; ANORO royalties rose 12% to $9.4 million.
- Product sales and license revenue were present in Q1 2023 following the La Jolla acquisition and Everest milestone, but not in the Q1 2022 reported results. SG&A rose to $19.7 million from $6.5 million and R&D to $12.6 million from $5.8 million, reflecting the expanded acquired operations and development activity.
- Consolidated net income decreased to $34.9 million from $37.9 million, while income attributable to Innoviva stockholders increased from $15.8 million. The 2022 period included $22.1 million attributable to noncontrolling interests; none was reported in Q1 2023.
- Operating cash flow fell to $25.7 million from $98.1 million, including the effects of higher receivables and lower collaboration cash receipts. Q1 2023 financing outflows included the 2023 Notes repayment and $40.7 million of share repurchases.
Outlook, commentary, and risks
- No specific revenue or earnings guidance was provided. Management’s liquidity assessment is based on current operating plans and forecasts; future funding needs could change with royalties, product sales, regulatory timing, acquisitions, or strategic investments.
- On April 17, 2023, after quarter-end, the FDA advisory committee voted 12–0 in support of SUL-DUR approval for specified Acinetobacter-related hospital- and ventilator-associated pneumonia. The FDA target action date was May 29, 2023. Zoliflodacin Phase 3 enrollment was expected to complete in the second half of 2023.
- Innoviva repurchased 3.42 million shares for approximately $40.3 million during Q1, at an average $11.79 per share. It repurchased a further 524,863 shares for approximately $6.1 million through May 2, 2023. The board’s program authorizes up to $100 million and does not require the company to repurchase a specified amount.
- Key exposures include dependence on GSK’s commercialization and sales of RELVAR/BREO and ANORO; third-party manufacturing and supply; product-sales concentration, with three distributors representing 32%, 31%, and 30% of Q1 net product sales; and fair-value volatility in strategic investments, including Level 3 investments.
- La Jolla is defending GIAPREZA patents against a generic applicant’s ANDA challenge. The company said it could not reasonably estimate any potential loss and recorded no contingency accrual. HCR’s GIAPREZA royalty agreement permits potential accelerated payment demands for specified breaches and grants recourse to GIAPREZA-related assets.
- Management reported disclosure controls were effective as of March 31, 2023. Integration of acquired operations and related financial controls continued. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Track GSK product sales and royalties, especially the impact of pricing, foreign exchange, and the absence of TRELEGY royalties.
- Verify SUL-DUR’s FDA decision and commercialization timing, and progress of the zoliflodacin Phase 3 program.
- Monitor GIAPREZA and XERAVA sales, distributor concentration, inventory step-up expense, and the GIAPREZA patent litigation.
- Assess cash use, share repurchases, debt service and maturities, and the terms and potential payments under the HCR royalty agreement.
- Review fair-value changes and liquidity restrictions on strategic investments, including the ISP Fund LP’s 36-month lock-up and Innoviva’s Armata and Gate investments.