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☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30,
2025
OR
☐
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
Stock Market LLC
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 31, 2025 was
74,769,062
.
Convertible subordinated notes due 2025, net of issuance costs
—
192,028
Other accrued liabilities
21,607
29,999
Total current liabilities
48,471
236,083
Long-term debt, net of discount and issuance costs
257,377
256,316
Other long-term liabilities
57,431
64,275
Income tax payable, long-term
55,876
53,227
Commitments and contingencies (Note 12)
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,
74,769
and
62,665
issued and outstanding as of
September 30, 2025 and December 31, 2024, respectively
748
627
Additional paid-in capital
903,988
692,329
Retained earnings (accumulated deficit)
105,215
(
1,797
)
Total stockholders’ equity
1,009,951
691,159
Total liabilities and stockholders’ equity
$
1,429,106
$
1,301,060
*
Condensed consolidated balance sheet has been derived from audited consolidated financial statements as of December 31, 2024.
See accompanying notes to condensed consolidated financial statements.
3
INNOVIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2025
2024
2025
2024
Revenue:
Royalty revenue, net of amortization of
capitalized fees paid of $
3,456
in the
three months ended September 30, 2025
and 2024, and $
10,368
in the nine months
ended September 30, 2025 and 2024
$
59,896
$
57,056
$
181,583
$
179,213
Net product sales
47,294
27,822
113,066
68,557
License and other revenue
610
4,630
2,066
19,135
Total revenue
107,800
89,508
296,715
266,905
Cost of products sold (inclusive of
amortization of inventory fair value
adjustments)
25,643
9,990
45,075
29,433
Amortization of acquired intangible assets
6,618
6,511
19,640
19,391
Gross profit
75,539
73,007
232,000
218,081
Operating expenses:
Selling, general and administrative
27,291
26,219
81,194
84,364
Research and development
13,670
3,551
26,049
9,989
Total operating expenses
40,961
29,770
107,243
94,353
Income from operations
34,578
43,237
124,757
123,728
Changes in fair values of equity method
investments, net
30,751
(
18,231
)
30,284
(
42,997
)
Changes in fair values of equity and
long-term investments, net
31,510
(
16,936
)
(
22,509
)
(
60,827
)
Interest and dividend income
5,472
5,500
14,935
13,373
Interest expense
(
4,015
)
(
5,807
)
(
13,389
)
(
17,460
)
Other expense, net
(
479
)
(
914
)
(
2,252
)
(
3,123
)
Income before income taxes
97,817
6,849
131,826
12,694
Income tax expense, net
(
7,909
)
(
5,636
)
(
24,814
)
(
9,634
)
Net income and comprehensive income
$
89,908
$
1,213
$
107,012
$
3,060
Net income per share:
Basic
$
1.30
$
0.02
$
1.65
$
0.05
Diluted
$
1.08
$
0.02
$
1.35
$
0.05
Shares used to compute net income per share:
Basic
69,058
62,569
64,901
62,759
Diluted
84,964
62,951
84,576
63,020
See accompanying notes to condensed consolidated financial statements.
4
INNOVIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Nine Months Ended September 30, 2025
Retained
Additional
Earnings
Total
Common Stock
Paid-In
(Accumulated
Stockholders’
Shares
Amount
Capital
Deficit)
Equity
Balance as of January 1, 2025
62,665
$
627
$
692,329
$
(
1,797
)
$
691,159
Exercise of stock options and
issuance of common stock units
and stock awards, net of
repurchase of shares to satisfy
tax withholding
106
1
182
—
183
Stock-based compensation
—
—
2,147
—
2,147
Net loss
—
—
—
(
46,584
)
(
46,584
)
Balance as of March 31, 2025
62,771
628
694,658
(
48,381
)
646,905
Exercise of stock options and
issuance of common stock units
and stock awards, net of
repurchase of shares to satisfy
tax withholding
211
2
1,245
—
1,247
Accrued excise tax on common
stock repurchase applied against
tax liability
—
—
59
—
59
Stock-based compensation
—
—
2,422
—
2,422
Conversion of 2025 Notes to common stock
29
—
500
—
500
Net income
—
—
—
63,688
63,688
Balance as of June 30, 2025
63,011
630
698,884
15,307
714,821
Exercise of stock options and
issuance of common stock units
and stock awards, net of
repurchase of shares to satisfy
tax withholding
47
1
168
—
169
Stock-based compensation
—
—
2,380
—
2,380
Conversion of 2025 Notes to common stock
11,120
111
191,864
—
191,975
Exercise of warrants
591
6
10,692
—
10,698
Net income
—
—
—
89,908
89,908
Balance as of September 30, 2025
74,769
$
748
$
903,988
$
105,215
$
1,009,951
5
Nine Months Ended September 30, 2024
Additional
Retained Earnings
Total
Common Stock
Paid-In
(Accumulated
Treasury Stock
Stockholders’
Shares
Amount
Capital
Deficit)
Shares
Amount
Equity
Balance as of January 1, 2024
63,307
$
633
$
1,093,340
$
(
25,189
)
32,005
$
(
393,829
)
$
674,955
Issuance of common stock units
and stock awards, net of
repurchase of shares to
satisfy tax withholding
124
1
403
—
—
—
404
Repurchase of common stock
(
634
)
(
6
)
(
9,659
)
—
—
—
(
9,665
)
Stock-based compensation
—
—
1,455
—
—
—
1,455
Net income
—
—
—
36,532
—
—
36,532
Balance as of March 31, 2024
62,797
628
1,085,539
11,343
32,005
(
393,829
)
703,681
Exercise of stock options and
issuance of common stock units
and stock awards, net of
repurchase of shares to satisfy
tax withholding
118
1
135
—
—
—
136
Repurchase of common stock
(
353
)
(
3
)
(
5,257
)
—
—
—
(
5,260
)
Retirement of treasury stock
—
—
(
393,829
)
—
(
32,005
)
393,829
—
Stock-based compensation
—
—
1,643
—
—
—
1,643
Net loss
—
—
—
(
34,685
)
—
—
(
34,685
)
Balance as of June 30, 2024
62,562
626
688,231
(
23,342
)
—
—
665,515
Exercise of stock options and
issuance of common stock units
and stock awards, net of
repurchase of shares to satisfy
tax withholding
39
—
211
—
—
—
211
Stock-based compensation
—
—
1,603
—
—
—
1,603
Net income
—
—
—
1,213
—
—
1,213
Balance as of September 30, 2024
62,601
$
626
$
690,045
$
(
22,129
)
—
$
—
$
668,542
See accompanying notes to condensed consolidated financial statements.
6
INNOVIVA, INC.
C
ONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
2025
2024
Cash flows from operating activities
Net income
$
107,012
$
3,060
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes
4,072
(
15,438
)
Amortization of capitalized fees and depreciation of property and equipment
10,464
10,466
Amortization of acquired intangible assets
19,640
19,391
Inventory fair value step-up adjustment included in cost of products sold
4,109
12,101
Stock-based compensation
6,949
4,701
Amortization of debt discount and issuance costs
1,533
1,581
Changes in fair values of equity method investments, net
(
30,284
)
42,997
Changes in fair values of equity and long-term investments, net
22,509
60,827
Acquired in-process research and development assets
9,368
—
Other non-cash items
402
(
324
)
Changes in operating assets and liabilities:
Accounts receivable
(
9,775
)
(
16,092
)
Receivables from collaboration arrangement
2,622
9,109
Inventory
(
10,299
)
(
5,600
)
Prepaid expenses
1,648
8,980
Other assets
1,001
594
Accounts payable
4,111
(
2,547
)
Accrued personnel-related expenses and other accrued liabilities
(
14,568
)
(
3,977
)
Accrued interest payable
(
3,191
)
(
2,589
)
Income tax payable
2,649
2,771
Deferred revenue
12,445
(
560
)
Net cash provided by operating activities
142,417
129,451
Cash flows from investing activities
Purchases of trading securities
(
49,674
)
(
48,136
)
Proceeds from trading securities
5,097
—
Purchases of equity investments managed by ISP Fund LP
—
(
32,270
)
Sales of equity investments managed by ISP Fund LP
19,939
52,831
Purchases and sales of other investments managed by ISP Fund LP, net
51,987
(
20,561
)
Purchases of property and equipment
(
1,121
)
(
270
)
Cash paid for in-process research and development assets acquired
(
9,368
)
—
Sale of property and equipment
—
98
Net cash provided by (used in) investing activities
16,860
(
48,308
)
Cash flows from financing activities
Repurchase of common stock
—
(
14,777
)
Repurchase of shares to satisfy tax withholding
(
116
)
(
123
)
Proceeds from issuances of common stock, net
1,715
874
Proceeds from exercise of warrants
10,698
—
Payment for repurchase of convertible subordinated notes due 2025
(
25
)
—
Net cash provided by (used in) financing activities
12,272
(
14,026
)
Net increase in cash and cash equivalents
171,549
67,117
Cash and cash equivalents at beginning of period
304,964
193,513
Cash and cash equivalents at end of period
$
476,513
$
260,630
7
Nine Months Ended September 30,
2025
2024
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest
$
10,353
$
10,359
Cash paid for income taxes
$
13,071
$
11,793
Supplemental Disclosure of Non-cash Investing and Financing Activities:
2025 Notes converted to common stock
$
192,475
$
—
Accrued interest income converted to long-term investments
$
—
$
2,090
See accompanying notes to condensed consolidated financial statements.
8
INNOVIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Operations and Summary of Significant Accounting Policies
Description of Operations
Innoviva, Inc. (and where context requires, together with its subsidiaries referred to as “Innoviva”, the “Company”, or “we” and other similar pronouns) is a company with a portfolio of royalties and innovative healthcare assets. Our royalty portfolio contains respiratory assets partnered with Glaxo Group Limited (“GSK”), including RELVAR
®
/BREO
®
ELLIPTA
®
(fluticasone furoate/vilanterol, “FF/VI”) and ANORO
®
ELLIPTA
®
(umeclidinium bromide/ vilanterol, “UMEC/VI”). Under the Long-Acting Beta2 Agonist (“LABA”) Collaboration Agreement, Innoviva is entitled to receive royalties from GSK on sales of RELVAR
®
/BREO
®
ELLIPTA
®
as follows:
15
% on the first $
3.0
billion of annual global net sales and
5
% for all annual global net sales above $
3.0
billion; and royalties from the sales of ANORO
®
ELLIPTA
®
, which tier upward at a range from
6.5
% to
10
%.
Our commercial and marketed products include GIAPREZA
®
(angiotensin II), approved to increase blood pressure in adults with septic or other distributive shock; XERAVA
®
(eravacycline), approved for the treatment of complicated intra-abdominal infections in adults; and XACDURO
®
(sulbactam for injection; durlobactam for injection), approved for the treatment of hospital-acquired and ventilator-associated pneumonias caused by
Acinetobacter
in adults. In addition, ZEVTERA
®
(ceftobiprole), an advanced-generation cephalosporin antibiotic, is exclusively commercialized by us in the U.S. under a distribution and license agreement with Basilea Pharmaceutica Ltd., (“Basilea”), which we entered into in December 2024. We continue to advance our pipeline, zoliflodacin, potentially a first-in-class, single-dose oral treatment for uncomplicated gonorrhea. In June 2025, the U.S. Food and Drug Administration (“FDA”) accepted the new drug application (“NDA”) for zoliflodacin, which has received Qualified Infectious Disease Product designation (“QIDP”), granting it priority review and the potential for extended market exclusivity. We have established a wholly owned, critical care and infectious disease operating platform, anchored by four differentiated commercial products and supported by a promising late-stage development asset.
Additionally, we strategically deploy capital and maintain economic interests in various healthcare companies, including a significant equity stake in Armata Pharmaceuticals, a company focused on development of bacteriophages with potential use across a range of infectious and other serious diseases.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements have been prepared on the same basis as audited consolidated financial statements and, in our opinion, include all adjustments, consisting of all normal recurring adjustments, necessary for the fair presentation of our financial position, results of operations, comprehensive income and cash flows. The interim results are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2025, or any other periods.
The accompanying unaudited condensed consolidated financial statements include the accounts of Innoviva, our wholly-owned subsidiaries, and certain variable interest entities (“VIEs”) for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (“SEC”) on February 26, 2025, and as amended on March 24, 2025.
There have been no material changes to our summary of significant accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Use of Management’s Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Management evaluates its significant accounting policies and estimates on an ongoing basis. We base our estimates on historical experience and other relevant assumptions that we believe to be reasonable under the circumstances. These estimates also form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources.
9
Concentrations of Credit Risk and of Significant Suppliers and Partner
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and equity and long-term investments. Although we deposit our cash with multiple financial institutions, our deposits, at times, may exceed federally insured limits.
We are dependent on third-party manufacturers to supply active pharmaceutical ingredients (“API”) and drug products for research and development and commercial programs. These programs could be adversely affected by significant interruption in the supply of API or drug products.
Currently, we derive the majority of our revenues from GSK. Our near-term success depends in large part upon the performance by GSK of its commercial obligations under the GSK Agreements and the commercial success of RELVAR
®
/BREO
®
ELLIPTA
®
and ANORO
®
ELLIPTA
®
. If GSK does not devote sufficient resources to the commercialization of these products, is unsuccessful in its efforts, or chooses to reprioritize its commercial programs, our business would be materially harmed. GSK is responsible for all clinical and other product development, regulatory, manufacturing and commercialization activities for products developed under the GSK Agreements, including RELVAR
®
/BREO
®
ELLIPTA
®
and ANORO
®
ELLIPTA
®
. Our quarterly royalty revenues may fluctuate due to a variety of factors, many of which are outside of our control. Our royalty revenues under the GSK Agreements may not meet our analysts’ or investors’ expectations due to a number of important factors.
Our revenues also include net product sales of GIAPREZA
®
, XERAVA
®
, XACDURO
®
, and, beginning in the second quarter of 2025, ZEVTERA
®
. In the U.S., hospitals and other healthcare organizations generally acquire our products through a network of specialty distributors, which are regarded as our customers for accounting purposes. We do not believe that the loss of any one of these distributors would significantly impact our ability to distribute our products, as we expect that the sales volume would be absorbed by either new or remaining distributors.
Three
of our customers each account
fo
r
21
%,
20
% and
19
%, respectively, of our net product sales for the three months ended
September 30, 2025
, and
24
%,
24
% and
22
%, respectively for the nine months ended September 30, 2025. These same customers account for
15
%,
26
% and
15
%, respectiv
ely, of our receivables from net product sales, which are included in “Accounts receivable” in our unaudited condensed consolidated balance sheet as of September 30, 2025.
Three
of our customers each account for
27
%,
21
% and
20
%, respectively, of our net product sales for the three months ended September 30, 2024, and
31
%,
23
% and
23
% for the nine months ended September 30, 2024. These same customers account for
31
%,
18
% and
15
%, respectively, of our receivables from net product sales, which are included in “Accounts receivable” in our condensed consolidated balance sheet as of December 31, 2024.
Refer to Item 1A. “Risk Factors” disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Segment Reporting
Operating segments are defined as components of an enterprise for which discrete financial information is available and are evaluated regularly by the chief operating decision maker (“CODM”) in making decisions about resource allocation and assessing performance. Refer to Note 15, “Segment Reporting”, for more information.
Variable Interest Entities
The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. When we obtain a variable interest in another entity, we assess at the inception of the relationship and upon occurrence of certain significant events whether the entity is a VIE and, if so, whether we are the primary beneficiary of the VIE based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
To assess whether we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, we consider all the facts and circumstances, including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (management and representation on the Board of Directors) and have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
10
To assess whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, we consider all of our economic interests that are deemed to be variable interests in the VIE. This assessment requires us to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.
Goodwill and Intangible Assets
Goodwill is recognized as the excess of the purchase consideration of an acquired entity over the fair value assigned to assets acquired and liabilities assumed in a business combination. Goodwill and intangible assets with an indefinite useful life are not amortized and are tested for impairment at least annually on the first day of December of each year or more frequently if indicators for potential impairment exist or whenever events or changes in circumstances indicate that the asset’s carrying asset amount may not be recoverable. Intangible assets with definite useful lives are amortized on a straight-line basis over their respective remaining useful lives and are tested for impairment only if indicators for potential impairment exist or whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. Significant judgment may be involved in determining if an indicator of impairment has occurred.
Asset Acquisitions
We measure and recognize asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes direct transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost of the acquisition is allocated to the assets acquired on the basis of their relative fair values. The cost allocated to acquire in-process research and development (“IPR&D”) with no alternative future use is charged to research and development expense at the acquisition date.
Equity and Long-Term Investments
We invest from time to time in equity and debt securities of private or public companies. If we determine that we have control over these companies under either voting or VIE models, we consolidate them in our unaudited condensed consolidated financial statements. If we determine that we do not have control over these companies under either voting or VIE models, we then determine if we have an ability to exercise significant influence via voting interests, board representation or other business relationships.
We may account for the investments where we exercise significant influence using either an equity method of accounting or at fair value by electing the fair value option under Accounting Standards Codification (“ASC”) Topic 825,
Financial Instruments
. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method, we apply it to all our financial interests in the same entity (equity and debt, including guarantees) that are eligible items. All gains and losses from fair value changes, unrealized and realized, are presented as changes in fair values of equity method investments, net, and changes in fair values of equity and long-term investments, net, within the unaudited condensed consolidated statements of income and comprehensive income.
If we conclude that we do not have the ability to exercise significant influence over an investee, we may elect to account for equity security without a readily determinable fair value using the measurement alternative method under ASC 321,
Investments - Equity Securities
. This method allows us to measure the investment at cost less impairment, if any, and adjusted for observable price changes in orderly transactions involving the same or a similar investment of the same issuer.
We also invest in ISP Fund LP, whose investments consist of money market funds, trading securities, and equity securities in the healthcare, pharmaceutical and biotechnology industries. Pursuant to the Partnership Agreement entered into in December 2020, we became a limited partner of the partnership. In October 2024, we elected to unwind our capital accounts in the partnership in accordance with the terms of the Partnership Agreement and expect to receive distributions through April 2026. Accordingly, the portion of the cash balance and money market funds expected to be distributed within 12 months from the balance sheet date has been classified as “Current portion of ISP Fund investments,” while the remaining equity investments have been classified as long-term investments in the condensed consolidated balance sheets as of September 30, 2025 and December 31, 2024.
11
Revenue Recognition
We apply the guidance on principal versus agent considerations under ASC Topic 606,
Revenue from Contracts with Customers
(“ASC 606”), to determine the appropriate treatment for the transactions between us and third parties. The classification of transactions under our arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants. Any consideration related to activities in which we are considered the principal, which includes being in control of the good or service before such good or service is transferred to the customer, are accounted for as product sales.
Revenue is recognized when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. Revenue is recognized through a five-step process: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price for the contract; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue as a performance obligation is satisfied.
Royalty Revenue
We recognize royalty revenue on net sales of products with respect to which we have contractual royalty rights in the period in which the royalties are earned. The net sales reports provided by our partner are based on their own methodology and assumptions for estimating rebates and returns, which they monitor and adjust regularly in light of contractual and legal obligations, historical trends, past experience, and projected market conditions. Our partner may make significant adjustments to its reported sales based on actual results, which could cause fluctuation in our royalty revenue. We conduct periodic royalty audits to evaluate the accuracy of the information provided. Royalties from GSK are recognized as the net of amortization of capitalized fees related to approval and launch milestone payments made to GSK.
Revenue from Product Sales
Revenue from product sales is recognized when our customers obtain control of the product and is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns and rebates. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from our estimates. If actual results vary materially from our estimates, we will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted. These items may include:
•
Chargebacks: Chargebacks are discounts we provide to distributors in the event that the sales prices to end users are below the distributors’ acquisition price. This may occur due to a direct contract with a health system, a group purchasing organization (“GPO”) agreement or a sale to a government facility. Chargebacks are estimated based on known chargeback rates and recorded as a reduction of revenue on delivery to our customers.
•
Discounts: We offer customers various forms of incentives and consideration, including prompt-pay and other discounts. We estimate discounts primarily based on contractual terms. These discounts are recorded as a reduction of revenue on delivery to our customers.
•
Returns: We offer customers a limited right of return, generally for damaged or expired products. We estimate returns based on an internal analysis, which includes actual experience. The estimates for returns are recorded as a reduction of revenue on delivery to our customers.
•
Rebates: We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each state’s eligibility guidelines and services. Under these programs, we pay rebates to participating states, typically within three months after the quarter in which the product was sold. Additionally, we may offer customer incentives and other forms of consideration, such as volume-based or performance-based rebates. Estimated rebates are recorded as a reduction of revenue on delivery to our customers.
We continue to assess our estimates of variable consideration as we accumulate additional historical data and will adjust these estimates accordingly.
12
License Revenue
At the inception of a licensing arrangement that includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price. We generally include these milestone payments in the transaction price when they are achieved because there is considerable uncertainty in the research and development processes that trigger receipt of these payments under our agreements. Similarly, we include approval milestone payments in the transaction price once the product is approved by the applicable regulatory agency. For a licensing arrangement that includes services, we recognize revenue over time using an input method, representing the transfer of goods or services as we perform activities over the term of the arrangement.
Research and Development Expenses
Research and development expenses are recognized in the period that services are rendered or goods are received. Research and development expenses consist of salaries and benefits, laboratory supplies, facilities and other overhead costs, research-related manufacturing costs, contract service and clinical-related service costs performed by third party research organizations, research institutions and other outside service providers. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the related goods are delivered or the related services are performed. We also utilize significant judgment and estimates to record accruals for estimated ongoing research costs based on the progress of the studies and progress of research manufacturing activities.
Recently Issued Accounting Pronouncement Adopted
In December 2023, the FASB issued ASU 2023-09,
Improvements to Income Tax Disclosures (Topic 740)
. The ASU requires the disclosure of income taxes paid disaggregated by jurisdiction and enhanced disclosures for the entity’s effective tax rate reconciliation as well as other income tax related disclosures. This ASU became effective for us on January 1, 2025, at which time it was adopted. We will include the required disclosures, to the extent applicable, within our annual financial statements as of and for the year ended December 31, 2025.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03,
Income Statement — Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40)
, which requires disclosures about specific types of expenses included in the expense captions presented on the face of the statement of income as well as disclosures about selling expenses. ASU 2024-03 is effective for the Company in annual reporting periods beginning after December 15, 2027, and interim reporting periods beginning after December 15, 2027. We are currently evaluating the potential impact that ASU 2024-03 may have on our financial statement disclosures.
In November 2024, the FASB issued ASU 2024-04,
Debt — Debt with Conversion and Other Options (Subtopic 470-20)
, which clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of convertible debt when changes are made to conversion features as part of an offer to settle the instrument. ASU 2024-04 is effective for annual reporting periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods. We are currently evaluating the potential impact that ASU 2024-04 may have on our financial statements and related disclosures.
In July 2025, the FASB issued ASU 2025-05,
Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses for Current Accounts Receivable and Contract Assets
, which provides a practical expedient for estimating expected credit losses by assuming current conditions remain unchanged over the life of the asset. We are currently evaluating the potential impact that ASU 2025-05 may have on our estimation methodologies.
2. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock and dilutive potential common stock equivalents then outstanding. Dilutive potential common stock equivalents include the assumed exercise, vesting and issuance of employee stock awards using the treasury stock method, as well as common stock issuable upon assumed conversion of our convertible senior notes due 2025 (the “2025 Notes”) and our convertible senior notes due 2028 (the “2028 Notes”) using the if-converted method. If in a net loss position, diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for dilutive potential common stock equivalents.
13
The following table shows the computation of basic and diluted net income per share for the
three and nine months ended September 30, 2025 and 2024:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands except per share data)
2025
2024
2025
2024
Numerator:
Net income, basic
$
89,908
$
1,213
$
107,012
$
3,060
Add: interest expense on 2025 Notes, net of tax effect
566
—
2,820
—
Add: interest expense on 2028 Notes, net of tax effect
1,416
—
4,238
—
Net income, diluted
$
91,890
$
1,213
$
114,070
$
3,060
Denominator:
Weighted-average shares used to compute basic
net income per share
69,058
62,569
64,901
62,759
Dilutive effect of 2025 Notes
5,467
—
9,235
—
Dilutive effect of 2028 Notes
9,955
—
9,955
—
Dilutive effect of options and awards granted under equity
incentive plan and employee stock purchase plan
462
372
464
261
Dilutive effect of outstanding warrant
22
10
21
—
Weighted-average shares used to compute diluted
net income per share
84,964
62,951
84,576
63,020
Net income per share
Basic
$
1.30
$
0.02
$
1.65
$
0.05
Diluted
$
1.08
$
0.02
$
1.35
$
0.05
Anti-Dilutive Securities
The following common stock equivalents were not included in the computation of diluted net income per share because their effect was anti-dilutive for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2025
2024
2025
2024
Outstanding options and awards granted under equity incentive
plan and employee stock purchase plan
1,520
1,111
1,482
1,434
Outstanding stock warrant
—
—
—
591
Outstanding 2025 Notes
—
11,150
—
11,150
Outstanding 2028 Notes
—
9,955
—
9,955
Total
1,520
22,216
1,482
23,130
3. Revenue Recognition
Net Revenue from Collaboration Arrangement
Net revenue recognized under our GSK Agreements was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2025
2024
2025
2024
Royalties
- RELVAR/BREO
$
51,508
$
48,199
$
157,135
$
154,317
Royalties
- ANORO
11,844
12,313
34,816
35,264
Total royalties
63,352
60,512
191,951
189,581
Less: amortization of capitalized fees paid
(
3,456
)
(
3,456
)
(
10,368
)
(
10,368
)
Total net royalty revenue
$
59,896
$
57,056
$
181,583
$
179,213
14
Net Product Sales
Total net product sales were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2025
2024
2025
2024
GIAPREZA
®
$
18,459
$
13,775
$
54,061
$
38,965
XACDURO
®
23,813
9,783
42,327
14,362
XERAVA
®
4,909
4,264
16,226
15,230
ZEVTERA
®
113
—
452
—
Total net product sales
$
47,294
$
27,822
$
113,066
$
68,557
We derived our net product sales from customers located in the U.S. and the rest of world as follows:
•
approximately
63
% and
37
%, respectively, for the three months ended September 30, 2025, and
75
% and
25
%, respectively, for the nine months ended September 30, 2025.
•
approxim
ately
71
% and
29
%, respectively, for the three months ended September 30, 2024, and
82
% and
18
%,
respectively, for the nine months ended September 30, 2024.
License Revenue
Refer to the out-license agreements with Zai Lab in Note 4, “License and Collaboration Arrangements”.
4. License and Collaboration Arrangements
Out-License Agreements
Zai Lab
Entasis entered into a license and collaboration agreement with Zai Lab (Shanghai) Co., Ltd. (“Zai Lab”) (Nasdaq: ZLAB), pursuant to which Zai Lab licensed exclusive rights to durlobactam and SUL-DUR, in the Asia-Pacific region (“the Zai Agreement”). Under the terms of the Zai Agreement, Zai Lab shall fund most of the registrational clinical trial costs in China for SUL-DUR, with the exception of Phase 3 patient drug supply of licensed products. Zai Lab shall conduct development activities and plan and obtain regulatory approval in a specified number of countries in the Asia-Pacific region beyond China after receipt of regulatory approval of a licensed product in China. Zai Lab is also solely responsible for commercializing licensed products in the Asia-Pacific region and shall commercialize licensed products for which it has obtained regulatory approval. We are obligated to supply Zai Lab with the licensed products for clinical development and for commercial use for a certain period unless Zai Lab notifies otherwise. Zai Lab may take over manufacturing responsibilities for its own commercialization activities within a specified time period following the effective date of the Zai Agreement.
We are eligible to receive
up to an aggregate of $
91.0
million in research and development support payments and development, regulatory and sales milestone payments related to SUL-DUR, imipenem and other combinations with the licensed products. Zai Lab shall pay us a tiered royalty equal to from a high-single digit to low-double digit percentage based on annual net sales of licensed products in the territory, subject to specified reductions for the market entry of competing products, loss of patent coverage of licensed products and for payments owed to third parties for additional rights necessary to commercialize licensed products in the territory. Payments received for research support and reimbursable clinical trial costs are recorded as a reduction to research and development expense during the period in which the qualifying expenses are incurred. Such amounts recorded for the
three and nine months ended September 30, 2025 and 2024 were not material. SUL-DUR was approved by China’s National Medical Products Administration in May 2024 and was launched by Zai Lab in mainland China in January 2025. Royalties under this arrangement based on the product sales were
$
0.4
million and $
1.5
million
for the three and nine months ended September 30, 2025
, respectively. We recognized $
8.0
million in license revenue for the nine months ended September 30, 2024 under this agreement as a result of the achievement of a regulatory milestone.
15
In April 2024, we entered into an amendment to the Zai Agreement (the “Amended Zai Agreement”), pursuant to which Zai Lab shall share costs associated with certain new manufacturing and technology transfer activities for XACDURO
®
(the “Services”), which were not contemplated under the Zai Agreement and are crucial for regulatory approval in the Asia-Pacific region.
Under the Amended Zai Agreement, we recognized $
0.4
million and $
1.0
million in license revenue for the three and nine months ended September 30, 2025, respectively,
and $
0.8
million and $
7.3
million for the three and nine months ended September 30, 2024, respectively. As of September 30, 2025 and December 31, 2024, outstanding amounts under this amendment of $
1.4
million and $
1.6
million, respectively, were included in “Accounts receivable” in our unaudited condensed consolidated balance sheets.
We entered into an interim supply agreement with Zai Lab in June 2024, which was amended in February 2025 and August 2025, under which Zai Lab shall purchase XACDURO
®
inventory (the “Supplied Inventory”) for their commercial use.
We recognized $
14.9
million and $
17.4
million in net product sales for the cost of the Supplied Inventory for the
three and nine months ended September 30, 2025, respectively.
We recognized $
5.5
million in net product sales for the cost of the Supplied Inventory for the three and nine months ended September 30, 2024
. Amounts outstanding under this agree
ment of $
7.4
million and $
0.6
million are included in “Accounts receivable” in our unaudited condensed consolidated balance sheets as of
September 30, 2025
and December 31, 2024, respectively. We have recorded deferred revenue of $
10.4
million as of
September 30, 2025
and other accrued liabilities of $
5.3
million as of December 31, 2024 under this agreement. The amount as of December 31, 2024 was recorded as other accrued liabilities pending finalization of the February and August 2025 amendments mentioned above.
We also entered into a manufacturing stage transfer agreement with Zai Lab in June 2024, which was amended in September 2024 (the “Zai Manufacturing Stage Transfer Agreement”). Pursuant to this agreement, Entasis shall provide assistance to Zai Lab for building out Zai Lab's manufacturing site for XACDURO
®
and be compensated for Entasis' services and associated costs. We recognized license revenue under this agreement of $
0.1
million and $
1.0
million for the
three and nine months ended September 30, 2025
, respectively, and $
3.4
million for the three and nine months ended September 30, 2024.
GARDP
Entasis entered into a collaboration agreement with the Global Antibiotic Research and Development Partnership (“GARDP”) for the development, manufacture and commercialization of the product candidate zoliflodacin in certain countries (“the GARDP Collaboration Agreement”). Under the terms of the GARDP Collaboration Agreement, GARDP shall use commercially reasonable endeavors to perform and fully fund the Phase 3 registrational trial, including the manufacture and supply of the product candidate containing zoliflodacin, in uncomplicated gonorrhea. We recorded $
0.8
million in reimbursements from GARDP under this agreement as a reduction to research and development expense during the three and nine months ended September 30, 2025. The reimbursable amounts from GARDP for the three and nine months ended September 30, 2024 were
no
t material.
In addition, under the GARDP Collaboration Agreement, GARDP was granted a worldwide, fully paid, exclusive and royalty-free license, with the right to sublicense, to use our zoliflodacin technology in connection with GARDP’s development, manufacture and commercialization of zoliflodacin in low-income and specified middle-income countries. We retained commercial rights in all other countries worldwide, including the major markets in North America, Europe and Asia-Pacific. We also retained the right to use and grant licenses to our zoliflodacin technology to perform our obligations under the GARDP Collaboration Agreement and for any purpose other than gonorrhea or community-acquired indications. If we believe that the results of the Phase 3 registrational trial of zoliflodacin would be supportive of an application for marketing approval, we are obligated to use our best efforts to file an application for marketing approval with the FDA within six months of the completion of the trial and to use commercially reasonable endeavors to file an application for marketing approval with the European Medicines Agency (“EMA”). Each party is responsible for using commercially reasonable efforts to obtain marketing authorizations for the product candidate in their respective territories. An application for marketing approval has been filed with the FDA in 2025.
PAION Pharma GmbH
Pursuant to the PAION AG and PAION Deutschland GmbH (together and individually “PAION”) License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA
®
and XERAVA
®
in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). PAION is currently a subsidiary of the Humanwell Healthcare Group. We are entitled to receive potential commercial milestone payments of up to $
109.5
million and double-digit tiered royalty payments. Royalties payable in a given jurisdiction under the PAION License are subject to reduction on account of generic competition and after patent expiration in that jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA
®
and XERAVA
®
in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA
®
and XERAVA
®
in the PAION Territory. Royalty revenue recognized under this agreement for the three and nine months ended September 30,
2025 were $
0.7
million and $
1.8
million, res
pectively. Royalty revenue recognized under this agreement for the three and nine months ended September 30, 2024 was
no
t material.
16
La Jolla also entered into the PAION commercial supply agreement (the “PAION Supply Agreement”) whereby La Jolla supplies PAION a minimum quantity of GIAPREZA
®
and XERAVA
®
until the earlier of July 13, 2027, or until a new supply agreement is executed. During the term of the supply agreement, we are reimbursed for direct and certain indirect manufacturing costs at cost. We recognized $
1.3
million and $
2.7
million in cost reimbursements for the three and nine months ended September 30, 2025, respectively.
Cost reimbursements recognized under this agreement for the three and nine months ended September 30, 2024 were
no
t material.
Everest Medicines Limited
Pursuant to the Everest Medicines Limited (“Everest”) License, La Jolla granted Everest an exclusive license to develop and commercialize XERAVA
®
for the treatment of complicated intra-abdominal infections (“cIAI”) and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). We are eligible to receive sales milestone payments of up to an aggregate of $
20.0
million under this agreement.
We are also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (i) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (ii) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (iii)
10
years after the first commercial sale of a product in such jurisdiction in the Everest Territory. Royalty revenue from Everest recognized f
or the three months ended September 30, 2025 was immaterial. We recognized $
2.0
million in royalty revenue from Everest for the nine months ended September 30, 2025
. Royalty revenue recognized for the three and nine months ended September 30, 2024 was $
0.6
million and $
2.3
million, respectively.
La Jolla also entered into the Everest commercial supply agreement (the “Everest Supply Agreement”) whereby La Jolla will supply Everest a minimum quantity of XERAVA
®
and will transfer to Everest certain XERAVA
®
-related manufacturing know-how. Under the Everest Supply Agreement, we are reimbursed for direct and certain indirect manufacturing costs at
110
% of cost. R
evenue recognized under the Everest Supply Agreement for the three and nine months ended September 30, 2025
was
no
t materi
al and $
1.8
million, respectively
. Revenue recognized under the Everest Supply Agreement for the three and nine months ended September 30, 2024
was $
0.9
million and $
2.6
million, respectively
.
In-License Agreements
Basilea
In December 2024, we entered into an exclusive distribution and license agreement with Basilea, under which we were granted exclusive marketing rights to ZEVTERA
®
in the U.S. The agreement will remain in effect through the expiration of ZEVTERA
®
’s
market exclusivity in the U.S. in 2034 (the “initial term”)and is subject to automatic renewal unless terminated by either party with prior notice. We paid an upfront fee of $
4.0
million, which was recognized as an intangible asset and is being amortized over the initial term of the agreement. Under the agreement, we are required to exclusively purchase ZEVTERA
®
(in pre-packaging and labeling form) from Basilea for the duration of the term. We are also obligated to pay Basilea tiered royalties ranging from the high-teens to mid-twenties, as well as tiered milestone payments based on annual net sales in the U.S. ZEVTERA
®
was commercially launched in the U.S. in July 2025. Royalty expense incurred on the sales was immaterial during the three and nine months ended September 30, 2025.
George Washington University
Pursuant to the George Washington University License (the “GW License”), GW exclusively licensed to La Jolla certain intellectual property rights relating to GIAPREZA
®
, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA
®
. Under the GW License, we are obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA
®
. We are obligated to pay a
6
% royalty on net sales of GIAPREZA
®
and
15
% on payments received from sublicensees. The obligation to pay royalties under the GW License extends through the last-to-expire patent covering GIAPREZA
®
. Royalty expense incurred under the GW License for the three and nine months ended September 30, 2025 were
$
1.1
million and $
3.3
million, respectively. Royalty expense incurred for the
three and nine months ended September 30, 2024
were $
1.0
million and $
2.5
million, respectively
.
17
Harvard University
Pursuant to the Harvard University (“Harvard”) License, Harvard exclusively licensed to La Jolla certain intellectual property rights relating to tetracycline-based products, including XERAVA
®
, including the exclusive rights to certain issued patents and patent applications covering such products. Under the Harvard License, we are obligated to use commercially reasonable efforts to develop, commercialize, market and sell tetracycline-based products, including XERAVA
®
. For each product covered by the Harvard License, we are obligated to make certain payments for the following: (i) up to approximately $
15.1
million upon the achievement of certain clinical development and regulatory milestones; (ii) a
5
% royalty on direct U.S. net sales of XERAVA
®
; (iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA
®
, starting at a minimum royalty rate of
4.5
%, with step-ups to a maximum royalty of
7.5
% based on the achievement of annual net product sales thresholds; and (iv)
20
% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA
®
. Royalty expense incurred under the Harvard License for the three and nine months ended September 30, 2025 wer
e $
0.3
million and $
1.0
million, respectively. Royalty expense incurred for the
three and nine months ended September 30, 2024 were
$
0.3
million and $
1.5
million, respectively.
Business Transfer and Subscription Agreement with AstraZeneca
Entasis entered into a Business Transfer and Subscription Agreement with AstraZeneca, AstraZeneca UK Limited and AstraZeneca Pharmaceuticals LP (collectively, “AstraZeneca”) (the “AstraZeneca Agreement”) in 2015, which was amended and restated through 2018, pursuant to which Entasis obtained, among other things, worldwide rights to durlobactam and zoliflodacin. Under the AstraZeneca Agreement, we are obligated to pay AstraZeneca a one-time milestone payment of $
5.0
million within
three months
of achieving a specified cumulative net sales milestone for durlobactam. We are also obligated to pay AstraZeneca a one-time milestone payment of $
10.0
million within
two years
of achieving the first commercial sale of zoliflodacin. Additionally, we are obligated to pay AstraZeneca tiered, single-digit royalties on the annual worldwide net product sales of durlobactam and, the lesser of tiered, single-digit royalties on the worldwide annual net sales of zoliflodacin and a specified share of the royalties we receive from sublicensees of zoliflodacin. Royalties on sales of zoliflodacin do not include sales by GARDP in low-income and specified middle-income countries as discussed above. Our obligation to make these royalty payments expires on a country-by-country basis for each product upon the later of (i) the 10-year anniversary of the first commercial sale of a product in that country or (ii) the expiration date of the last patent right covering the product in that country.
The royalty expense in respect of durlobactam arising from our net product sales of XACDURO
®
for the three and nine months ended September 30, 2025 and 2024 was
no
t material.
Massachusetts Institute of Technology
In connection with the asset acquisition described in Note 13, “Asset Acquisition”, in September 2025, we entered into a license agreement with Massachusetts Institute of Technology (“MIT”), under which MIT licensed to us certain patent rights relating to a drug delivery device. Under this agreement, we paid an upfront fee of $
0.5
million and are obligated to pay a minimal annual maintenance fee. We are also obligated to pay MIT up to $
17.5
million in development, regulatory and sales milestone payments, and pay royalties in a low single-digit percentage on future net sales related to the licensed product.
5. Consolidated Entity
ISP Fund LP
In 2020 and 2021, Innoviva Strategic Partners LLC, our wholly owned subsidiary (“Strategic Partners”), contributed a total of $
300.0
million to ISP Fund LP (the “Partnership”) for investing in “long” positions in the healthcare, pharmaceutical and biotechnology sectors, and became a limited partner. We consolidate ISP Fund LP under the VIE model as we have determined that ISP Fund LP is a VIE and we are the primary beneficiary of the entity. Our maximum exposure to loss is equal to the amount we invested in the entity.
18
ISP Fund LP is determined to be an investment company under ASC 946,
Financial Services – Investment Companies
, as it meets all fundamental characteristics of an investment company, and its activities are consistent with those of an investment company. Since ISP Fund LP is subject to investment company industry specific guidance, we have retained the industry-specific guidance applied by the Partnership. In addition, as our investment in the Partnership is a passive investment for the Company and is not part of our main operations, the investments are presented as part of “Equity and long-term investments” in our condensed consolidated balance sheets. In October 2024, Strategic Partners made an election to unwind its capital accounts in the Partnership in accordance with the terms of the Partnership Agreement and we expect to receive distributions of our capital accounts through April 2026. Accordingly, a portion of our investments, which consist of cash and money market funds that we expect to be distributed within 12 months from the balance sheet date, were classified as “Current portion of ISP Fund investments” in the condensed consolidated balance sheets as of September 30, 2025
and December 31, 2024, and the remaining equity investments managed by ISP Fund LP are expected to be distributed through April 2026. Cash distributions of $
43.9
million and $
28.0
million were received in August 2025 and April 2025, respectively.
We report in our condensed consolidated statements of income and comprehensive income any investment gains and losses by the Partnership as part of “Changes in fair value of equity and long-term investments, net”, any interest and dividend income as part of “Interest and dividend income” and any investment expenses as part of “Other expense, net”.
As of September 30, 2025, we continued to hold approxi
mately
100
% of
the economic interest of the Partnership. As of September 30, 2025 and December 31, 2024, total assets of the Partnership were
$
115.7
million
and $
255.7
million, respectively, with the majority attributable to either current portion of ISP Fund investment or to equity and long-term investments. As of September 30, 2025 and December 31, 2024, total liabilities were
$
0.1
million
and $
0.2
million, respectively. The partnership’s assets can only be used to settle its own obligations.
During the three and nine months ended September 30, 2025
, we recorded $
0.4
million and $
1.9
million, respectively, in investment-related expense incurred by the Partnership, generated $
0.8
million and $
3.2
million, respectively, in interest income, and recorded $
11.7
million in net realized and unrealized gains and $
69.2
million in net realized and unrealized losses, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.
During the three and nine months ended September 30, 2024, we recorded an immaterial amount and $
0.3
million, respectively, of net investment-related expense incurred by the Partnership and $
17.8
million and $
59.8
million, respectively, of net realized and unrealized losses as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.
The following is a summary of individual investments held by ISP Fund at each balance sheet date:
September 30,
December 31,
(In thousands)
2025
2024
Common stock - Publicly traded healthcare companies
United States
$
52,920
$
84,039
United Kingdom
3,358
1,989
Total common stock
56,278
86,028
Preferred stock - Privately held healthcare companies
United States
2,699
53,591
Warrants - Privately held healthcare companies
—
8,507
Money market fund and cash
56,589
107,532
Total investments held by ISP Fund LP
$
115,566
$
255,658
6. Equity and Other Investments and Fair Value Measurements
Equity and Other Investments in Armata
Since the first quarter of 2020, Innoviva and its wholly owned subsidiary, Innoviva Strategic Opportunities, LLC (“ISO”), have invested in the common stock, warrants, convertible note, and term loans of Armata Pharmaceuticals, Inc. (“Armata”), a clinical stage biotechnology company focused on development of precisely targeted bacteriophage therapeutics for antibiotic-resistant infections.
19
On March 12, 2025, ISO and Armata entered into a Credit and Security Agreement, under which ISO extended a term loan to Armata (the “Armata March 2025 Term Loan”) in a principal amount of $
10.0
million. The Armata March 2025 Term Loan bears interest at a rate of
14
% per annum and matures on
March 12, 2026
. The Credit and Security Agreement is secured by substantially all assets of Armata and its domestic and foreign material subsidiaries. Concurrently, ISO extended the maturity date of the convertible note and the term loans issued in July 2023 (the “Armata July 2023 Term Loan”) and in March 2024 (the “Armata March 2024 Term Loan”) to March 12, 2026.
On August 11, 2025, ISO and Armata entered into a Credit and Security Agreement, under which ISO
extended a term loan to Armata (the “Armata August 2025 Term Loan”) in a principal amount of $
15.0
million. The Armata August 2025 Term Loan bears an interest rate of
14
% per annum and matures on
January 11, 2029
. The Credit and Security Agreement is secured by substantially all of the assets of Armata and its domestic and foreign material subsidiaries.
As of September 30, 2025, Innoviva collectively o
wns
25,076,769
shares of Armata’s common stock, representing a
69.2
% equity interest, and held
10,653,847
warra
nts with exercise prices ranging from $
3.25
to $
5.00
per share. Innoviva also
held $
30.1
million in principal amount of Armata’s convertible note and a total of $
85.1
million in term loans.
The investments in Armata’s common stock and warrants provide Innoviva and ISO the ability to have significant influence but not control over Armata’s operations. Armata’s business and affairs are managed under the direction of its board of directors, which Innoviva and ISO do not control. Based on our evaluation, we determined that Armata is a VIE, but Innoviva and ISO are not the primary beneficiary of the VIE. We have not provided financial or other support that we were not previously contractually required to provide during the periods presented. Our maximum exposure to loss is equal to the amount we invested in the entity.
We account for Armata’s common stock and warrants under the equity method using the fair value option. The fair value of Armata’s common stock is measured based on its closing market price.
All warrants are exercisable immediately within
five years
from
the issuance date of the warrants and include a cashless exercise option.
The warrants purchased in 2020 expired during the
first quarter of 2025
.
We use the Black-Scholes-Merton pricing model to estimate the fair value of these warrants with the following input assumptions: Armata’s closing market price on the valuation date, the risk-free interest rate computed based on the U.S. Treasury yield, the remaining contractual term as the expected term, and the expected stock price volatility calculated based on the historical volatility of the common stock of Armata and its peer companies. We account for the convertible note as a trading security, measured at fair value using a Monte Carlo simulation model with the probability of certain qualified events and the assumptions of risk-free rate, volatility of stock price and timing of certain qualified events. We account for the term loans as trading securities, measured at fair value using an income approach based on the discounted value of expected future cash flows.
As of September 30, 2025
, the fair values of our holdings of Armata common stock, warrants, the convertible note, the term loan issued in 2023, the term loan issued in 2024, the term loan issued in March 2025 and the term loan issued in August 2025 were estimated at $
74.7
million, $
7.8
million, $
56.9
million, $
32.7
million, $
42.7
million, $
10.8
million and $
15.4
million
, respectively.
As of December 31, 2024, the fair values of our holdings of Armata common stock, warrants, the convertible note, the term loan issued in 2023, and the term loan issued in 2024 were estimated at $
46.4
million, $
5.9
million, $
42.1
million, $
30.2
million and $
39.3
million, respectively.
For the common stock and warrants, we recorded $
30.8
million and $
30.3
million in unrealized gain for the
three and nine months ended September 30, 2025
, respectively, and $
18.2
million and $
43.0
million in unrealized loss for the three and nine months ended September 30, 2024, respectively, as changes in fair values of equity method investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.
For the convertible note, we recorded $
13.0
million and $
14.9
million in unrealized gain for the
three and nine months ended September 30, 2025
, respectively, and $
2.2
million and $
6.4
million in unrealized loss for the three and nine months ended September 30, 2024, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.
For the term loan issued in July 2023, we recorded
1.1
million and $
2.5
million in unrealized gain for the
three and nine months ended September 30, 2025
, respectively, and $
1.4
million and $
2.4
million in unrealized gain for the three and nine months ended September 30, 2024, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.
20
For the term loan issued in March 2024, we recorded $
1.5
million and $
3.5
million in unrealized gain for the
three and nine months ended September 30, 2025
, respectively, and $
2.0
million and $
3.3
million in unrealized gain for the three and nine months ended September 30, 2024, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.
For the term loan issued in March 2025, we recorded $
0.4
million and $
0.9
million in unrealized gain for the
three and nine months ended September 30, 2025, respectively, as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statement of income and comprehensive income.
For the term loan issued in August 2025, we recorded $
0.4
million in unrealized gain for the
three and nine months ended September 30, 2025 as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statement of income and comprehensive income.
The summarized financial information, including the portion we do not own, is presented for Armata on a one quarter lag as follows:
Income Statement Information
Three Months Ended June 30,
Nine Months Ended June 30,
(In thousands)
2025
2024
2025
2024
Revenue
$
2,169
$
—
$
3,895
$
2,494
Loss from operations
$
(
6,844
)
$
(
11,914
)
$
(
25,574
)
$
(
28,720
)
Net income (loss)
$
(
16,295
)
$
8,986
$
(
20,226
)
$
(
35,882
)
Equity and Other Investments in InCarda
Since the third quarter of 2020, Innoviva TRC Holdings, LLC (“ITH”), a wholly owned subsidiary of Innoviva, has invested in the common stock, preferred stock, warrants and convertible notes of InCarda Therapeutics, Inc. (“InCarda”), a privately held biopharmaceutical company focused on developing intravenous and inhaled therapies for cardiovascular diseases.
As of September 30, 2025, ITH owns
36,742,250
shares of InCarda’s common and preferred stock and
2,490,033
warrants, representing a
9.1
% equity interest. I
TH also invested $
0.4
million and $
0.5
million in the principal amounts of InCarda’s convertible notes issued in Januar
y 2024 (the “InCarda 2024 Convertible Note”) and February 2025 (the “InCarda 2025 Convertible Note”), respectively (collectively, the “InCarda Convertible Notes”).
With the exception of the InCarda Convertible Notes and the warrants, we account for our investments in InCarda under the measurement alternative. Under the measurement alternative, the equity investment is initially recorded at its allocated cost, but the carrying value may be adjusted through earnings upon an impairment or when there is an observable price change involving the same or a similar investment with the same issuer. We account for the convertible note as trading securities, measured at fair value.
Our investment in InCarda does not provide us with the ability to control or have significant influence over InCarda’s operations. Based on our evaluation, we determined that InCarda is a VIE, but we are not the primary beneficiary of the VIE. We have not provided financial or other support that we were not previously contractually required to provide during the periods presented. Our maximum exposure to loss is equal to the amount we invested in the entity.
As of September 30, 2025 and December 31, 2024, we recorded as equity and long-term investments in the unaudited condens
ed consolidated balance sheets $
4.8
million in carrying amount of InCarda’s Series C preferred stock and $
0.1
million in fair value of the InCarda warrants.
As of September 30, 2025 and December 31, 2024
, we recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets $
2.7
million, for InCarda’s Series D-1 preferred stock, Series D-2 preferred stock, and common stock using the measurement alternative.
As of September 30, 2025
, we recorded $
0.9
million in fair value of the InCarda Convertible Notes, as equity and long-term investments in the unaudited condensed consolidated balance sheet. As of December 31, 2024, we recorded $
0.4
million in fair value of InCarda 2024 Convertible Note as equity and long-term investments in the unaudited condensed consolidated balance sheet.
21
During the three and nine months ended September 30, 2025 and 2024, the change to the carrying amount of our investments in InCarda was not material.
Equity and Other Investments in ImaginAb
Since March of 2021, ITH has invested $
7.6
million in
8,825,301
shares of common and preferred stock, and $
4.8
million in a convertible note of ImaginAb, Inc. (“ImaginAb”), a privately held biotechnology company focused on clinically managing cancer and autoimmune diseases via molecular imaging. On January 13, 2025, ITH and ImaginAb executed an amendment to extend the maturity date of the convertible note from January 31, 2025 to
May 30, 2025
. As
of September 30, 2025, and December 31, 2024, we held an
11.8
%
equity interest in ImaginAb.
Our investment in ImaginAb does not provide us with the ability to control or have significant influence over ImaginAb’s operations. Based on our evaluation, we determined that ImaginAb is a VIE, but we are not the primary beneficiary of the VIE. We have not provided financial or other support that we were not previously contractually required to provide during the periods presented. Our maximum exposure to loss is equal to the amount we invested in the entity.
Because ImaginAb’s equity securities are not publicly traded and do not have a readily determinable fair value, we account for our investment in ImaginAb’s preferred stock and common stock using the measurement alternative. As of September 30, 2025 and December 31, 2024
, our investment in the preferred stock and common stock amounted to $
7.6
mi
llion and was recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets. There was no change in the carrying amount of our equity investments in ImaginAb during the three and nine months ended September 30, 2025 and 2024.
In May 2025, ImaginAb fully settled the convertible note of $
4.8
million for $
5.1
million, including $
0.3
million in accrued interest and commitment fees. Before the repayment by ImaginAb, the convertible note was accounted for as a trading security and measured at fair value using a Monte Carlo simulation model with the probability of certain qualified events and the assumptions of risk-free rate, volatility of stock price and timing of certain qualified events. As of
December 31, 2024
, we recorded $
5.0
million in fair value of the ImaginAb convertible note as equity and long-term investments in the condensed consolidated balance sheet. C
hanges to the fair value of the ImaginAb convertible note for the in 2025 through its settlement date were immaterial. Duri
ng the three and nine months ended September 30, 2024, we recorded $
0.1
million and $
0.4
million, respectively, in net unrealized gain on the ImaginAb Convertible Note as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated statements of income and comprehensive income.
Convertible Promissory Notes in Syndeio Biosciences
Syndeio Biosciences, Inc. (formerly known as Gate Neurosciences, Inc.) (“Syndeio”) is a privately held biopharmaceutical company focused on developing the next generation of targeted nervous system therapies, leveraging precision medicine approaches to develop breakthrough drugs for psychiatric and neurologic diseases. In May 2025, Gate Neurosciences, Inc. rebranded as Syndeio. From 2021 to 2024, ITH invested in Syndeio a total of $
51.5
million in convertible notes (the “Syndeio 2021 Convertible Note”).
On March 3, 2025, ITH entered into a Convertible Promissory Note Purchase Agreement with Syndeio to acquire a convertible promissory note (the “Syndeio 2025 Convertible Note”) with a principal amount of $
15.0
million. The Syndeio 2025 Convertible Note bears an annual interest rate of
8
% and will mature on
November 24, 2026
. The Syndeio 2025 Convertible Note will convert into shares of series seed preferred stock of Syndeio upon a qualified initial public offering (“IPO”), or into shares of shadow preferred stock of Syndeio (“Shadow Preferred”) upon a qualified financing. Shadow Preferred means preferred stock having identical rights, preferences and restrictions as the preferred stock that would be issued in a qualified financing.
We account for both the Syndeio 2021 Convertible Note and the Syndeio 2025 Convertible Note as trading securities, measured at fair value using a Monte Carlo simulation model with the probability of certain qualified events and the assumptions of equity value of Syndeio, risk-free rate, expected stock price, volatility of its peer companies, and the time until a financing is raised.
As of September 30, 2025, and December 31, 2024
, the fair value of the Syndeio 2021 Convertible Note was estimated at $
77.7
million and $
50.9
million, respectively, and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheets. We recorded $
6.3
million and $
26.8
million in unrealized gain for the
three and nine months ended September 30, 2025
, respectively, as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated statements of income and comprehensive income. We recorded $
0.4
million and $
0.7
milli
on in unrealized loss for the three and nine months ended September 30, 2024, respectively, as changes in fair values of equity and long-term investments, net in the unaudited condensed consolidated statements of income and comprehensive income.
22
As of September 30, 2025, the fair value of the S
yndeio 2025 Convertible Note was estimated at $
15.1
million and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheet. We recorded $
0.6
million in unrealized loss for the three months ended September 30, 2025 as changes in fair values of equity and long-term investments, net in the una
udited condensed consolidated statement of income and comprehensive income. We recorded immaterial unrealized gains for the nine months ended September 30, 2025.
Equity Investment in Nanolive
In 2022, ITH invested $
10.6
million in
18,750,000
shares of the preferred stock of Nanolive SA (“Nanolive”), a Swiss privately held life sciences company focused on developing breakthrough imaging solutions that accelerate research in growth industries such as drug discovery and cell therapy.
As of September 30, 2025
and December 31, 2024, we held
13.0
% of Nanolive equity ownership.
Our investment in Nanolive does not provide us with the ability to control or have significant influence over Nanolive’s operations. Based on our evaluation, we determined that Nanolive is a VIE, but we are not the primary beneficiary of the VIE. We have not provided financial or other support that we were not previously contractually required to provide during the periods presented. Our maximum exposure to loss is equal to the amount we invested in the entity.
Because Nanolive’s equity securities are not publicly traded and do not have a readily determinable fair value, we account for our investment in Nanolive’s Series C preferred stock using the measurement alternative. As of September 30, 2025 and December 31, 2024
, $
10.6
million was recorded as equity and long-term investme
nts in the unaudited condensed consolidated balance sheets and there was no change to the carrying amount of our investment.
Convertible Promissory Note in Lyndra
On February 27, 2025, Strategic Partners entered into a note purchase agreement with Lyndra Therapeutics, Inc. (“Lyndra”) to acquire a convertible promissory note (the “Lyndra Convertible Note”) with a principal amount of $
9.2
million. Lyndra is a clinical-stage company with a novel drug delivery platform that enables the administration of ultra-long-acting oral drugs. The Lyndra Convertible Note bears an annual interest rate of
8
% and will mature on
November 27, 2025
. The Lyndra Convertible Note would convert into shares of preferred stock of Lyndra upon a qualified financing as defined in the agreement. Upon maturity or certain events and if no qualified financing has occurred, the principal and unpaid accrued interest may either be repaid in full in cash plus a certain premium or convert into shares of preferred stock of Lyndra as defined in the agreement.
Our investment in Lyndra does not provide us with the ability to control or have significant influence over Lyndra’s operations. Based on our evaluation, we determined that Lyndra is a VIE, but we are not the primary beneficiary of the VIE. We have not provided financial or other support that we were not previously contractually required to provide during the periods presented. Our maximum exposure to loss is equal to the amount we invested in the entity. We account for the Lyndra Convertible Note as a trading security, measured at fair value using an income approach based on the discounted value of expected future cash flows.
In late March of 2025, Lyndra began winding down its operations due to a lack of financing. In September 2025, Lyndra sold the majority of its assets, resulting in a change of control as defined in the Lyndra Convertible Note (Refer to Note 13, “Asset Acquisition”)
. Upon the consummation of the change of control, the maturity date of the Lyndra Convertible Note was accelerated, and its principal and accrued interest became due. Due to Lyndra’s inability to repay the full amount, the note went into default and became subject to a
20
% premium on the principal balance. Interest will continue to accrue until full repayment.
As of September 30, 2025, the fair value of the Lyndra Convertible Note was estimated at
$
6.8
million
and recorded as equity and long-term investments in the unaudited condensed consolidated balance sheet. We recorded
$
2.4
million i
n unrealized loss for the three and nine months ended September 30, 2025 as changes in fair values of equity and long-term investments, net, in the unaudited condensed consolidated statements of income and comprehensive income.
23
Reconciliation of Equity and Long-Term Investments Balances
The following table reconciles the change in balances in “Equity and Long-Term Investments” as of each balance sheet date:
(In thousands)
Amount
Equity and long-term investments as of December 31, 2023
$
444,432
Purchases of trading securities
63,201
Changes in fair value, net
(
59,161
)
Reclassification of current portion
(
107,532
)
Other
724
Equity and long-term investments as of December 31, 2024
341,664
Purchases of trading securities
49,674
Proceeds from trading securities
(
5,097
)
Net sales and purchases of investments managed by ISP Fund
(
71,926
)
Changes in fair value, net
(
22,509
)
Reclassification of current portion
50,943
Other
1,045
Equity and long-term investments as of September 30, 2025
$
343,794
Available-for-Sale Securities
The estimated fair value of available-for-sale securities is based on quoted market prices for these investments that were based on prices obtained from a commercial pricing service. Available-for-sale securities are summarized below:
September 30, 2025
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
(In thousands)
Cost
Gains
Losses
Fair Value
Money market funds
(1)
$
442,266
$
—
$
—
$
442,266
Total
$
442,266
$
—
$
—
$
442,266
(1)
Money market funds are included in cash and cash equivalents in the condensed consolidated balance sheets.
December 31, 2024
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
(In thousands)
Cost
Gains
Losses
Fair Value
Money market funds
(1)
$
289,441
$
—
$
—
$
289,441
Total
$
289,441
$
—
$
—
$
289,441
(1)
Money market funds are included in cash and cash equivalents in the condensed consolidated balance sheets.
As of September 30, 2025
and December 31, 2024, all available-for-sale investments were money market funds, and there was
no
credit loss recognized.
24
Fair Value Measurements
Our available-for-sale securities, equity and long-term investments and contingent value rights are measured at fair value on a recurring basis and our debt is carried at amortized cost basis.
Estimated Fair Value Measurements as of September 30, 2025 Using:
Types of Instruments
Quoted Price
in Active
Markets for Identical Assets
Significant
Other Observable Inputs
Significant Unobservable Inputs
(In thousands)
Level 1
Level 2
Level 3
Total
Assets
Money market funds
$
442,266
$
—
$
—
$
442,266
Investments held by ISP Fund LP
112,867
—
2,699
115,566
Equity investment - Armata Common Stock
74,729
—
—
74,729
Equity investment - Armata Warrants
—
7,848
—
7,848
Equity investment - InCarda Warrants
—
—
135
135
Term loan investment - Armata July 2023 Term Loan
—
—
32,691
32,691
Term loan investment - Armata March 2024 Term Loan
—
—
42,737
42,737
Term loan investment - Armata March 2025 Term Loan
—
—
10,849
10,849
Term loan investment - Armata August 2025 Term Loan
There were
no
transfers between Level 1, Level 2 or Level 3 during the periods presented.
The fair values of our equity investments in Armata’s common stock and publicly traded investments held by ISP Fund LP are based on the quoted prices in active markets and are classified as Level 1 financial instruments. The fair values of the warrants in Armata classified within Level 2 are based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.
The investments classified as Level 3 financial instruments are securities that are not publicly traded and the assumptions used in the valuation model for valuing these securities are based on significant unobservable and observable inputs including those of publicly traded peer companies. There are uncertainties on the fair value measurement of the instruments classified under Level 3 due to the use of unobservable inputs and interrelationships between these unobservable inputs, which could result in higher or lower fair value measurements.
The fair values of our 2025 Notes and 2028 Notes are based on recent trading prices of the respective instruments.
7. Goodwill and Intangible Assets
Goodwill and intangible assets acquired are recognized at fair value as of the acquisition date. We recognized goodwill of $
11.5
million and $
6.4
million from our acquisitions of Entasis and La Jolla, respectively, in 2022. The carrying amount of goodwill as of
September 30, 2025 and December 31, 2024 was
$
17.9
million
. We have
no
t recognized any impairment losses related to goodwill during the periods presented.
Intangible assets with definite lives are amortized over their estimated useful lives.
The carrying basis and accumulated amortization of recognized intangible assets as of
September 30, 2025 and December 31, 2024 were as follows:
September 30, 2025
Useful Life
Gross
Accumulated
Net Carrying
(In thousands)
(Years)
Amount
Amortization
Amount
Marketed products
8
-
10
$
223,700
$
(
64,554
)
$
159,146
In-process research and development
2,600
—
2,600
Collaboration agreement
10
35,400
(
8,353
)
27,047
Total
$
261,700
$
(
72,907
)
$
188,793
December 31, 2024
Useful Life
Gross
Accumulated
Net Carrying
(In thousands)
(Years)
Amount
Amortization
Amount
Marketed products
8
-
10
$
223,700
$
(
47,559
)
$
176,141
In-process research and development
2,600
—
2,600
Collaboration agreement
10
35,400
(
5,708
)
29,692
Total
$
261,700
$
(
53,267
)
$
208,433
Intangible assets recognized as a result of the acquisition of Entasis amounted to $
106.7
million, which consisted of Entasis’ in-process research and development related to its antibacterial therapeutic product candidates and a collaboration agreement amounting to $
71.3
million and $
35.4
million, respectively. Following the FDA approval of XACDURO
®
in May 2023, we started amortizing $
68.7
million of the then in-process research and development as a marketed product, as well as the collaboration agreement, over their estimated useful lives. The useful l
ife of the remaining in-process research and development
of $
2.6
million, which pertains to zoliflodacin, will be determined upon commercialization of the underlying product candidate; thus,
no
amortization expense for this intangible asset
was recognized for the periods presented.
Intangible assets recognized as a result of the acquisition of La Jolla amounting to $
151.0
million pertain to product rights and developed technologies on La Jolla’s currently marketed products. These are intangible assets with determinable lives and are amortized over their estimated useful lives.
The upfront fee of $
4.0
million paid to Basilea for the exclusive commercialization right of ZEVTERA
®
in the U.S. in December 2024 was recorded as an intangible asset and is being amortized over the initial term of the agreement (refer to Note 4, “License and Collaboration Arrangements”).
26
We recognized amortization expense of
$
6.6
million and $
19.6
million fo
r the three and nine months ended September 30, 2025
, respectively. We recognized amortization expense of $
6.5
million and $
19.4
million for the
three and nine months ended September 30, 2024, respectively. Future amortization expense is expected to be
$
6.6
million for th
e remainder of 2025, $
26.3
million for each of the years from 2026 to 2029 and $
74.3
million thereafter.
8. Balance Sheet Components
Inventory
Inventory consisted of the following:
September 30,
December 31,
(in thousands)
2025
2024
Raw materials
$
14,373
$
11,113
Work-in-process
18,671
20,529
Finished goods
5,319
2,083
Total inventory
$
38,363
$
33,725
As of September 30, 2025 and December 31, 2024, total inventory included net fair value adjustments resulting from the acquisition of La Jolla of approximatel
y $
5.0
million
and $
9.2
million, respectively
, which will be amortized and recognized as cost of products sold when sales occur in future periods. The fair value adjustments recorded as part of cost of products sold amounted to
$
3.5
million and $
4.1
million f
or the three and nine months ended September 30, 2025
, respectively. The fair value adjustments recorded as part of cost of products sold amounted to $
1.8
million and $
12.1
million for the
three and nine months ended September 30, 2024, respectively.
Other Accrued Liabilities
Other accrued liabilities consisted of the following:
September 30,
December 31,
(in thousands)
2025
2024
Accrued contract manufacturing expenses
$
1,128
$
1,071
Accrued clinical and research expenses
179
611
Accrued professional services
5,683
8,682
Current portion of lease liabilities
680
1,572
Royalty obligation payable
3,434
2,951
Current portion of deferred royalty obligations
7,742
6,438
Accrued license fees and royalties
1,556
1,727
Other
(1)
1,205
6,947
Total other accrued liabilities
$
21,607
$
29,999
(1)
Amount as of December 31, 2024 includes $
5.3
million advance payments received from our partner for inventory supply as discussed in Note 4, “License and Collaboration Arrangements”.
Other Long-term Liabilities
Other long-term liabilities consisted of the following:
September 30,
December 31,
(in thousands)
2025
2024
Long-term portion of deferred royalty obligation
$
56,526
$
63,096
Long-term portion of lease liabilities
905
1,179
Total other long-term liabilities
$
57,431
$
64,275
27
9. Stock-Based Compensation
Stock-Based Compensation Expense
The following table summarizes stock-based compensation expense:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2025
2024
2025
2024
Selling, general and administrative
$
2,247
$
1,509
$
6,573
$
4,434
Research and development
133
94
376
267
Total
$
2,380
$
1,603
$
6,949
$
4,701
Valuation Assumptions
Black-Scholes-Merton assumptions used in calculating the estimated value of stock options granted by Innoviva on the date of grant were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2025
2024
2025
2024
Risk-free interest rate
3.9
%
4.15
%
3.9
% -
4.4
%
4.14
% -
4.65
%
Expected term (in years)
5.88
-
6.13
6.14
5.50
-
6.14
5.07
-
6.15
Volatility
33.6
% -
33.8
%
35.8
%
33.6
% -
34.9
%
35.8
% -
36.8
%
Dividend yield
—
%
—
%
—
%
—
%
Weighted-average estimated fair value of stock options granted
$
7.32
- $
7.52
$
7.76
$
7.17
- $
7.92
$
4.97
- $
7.76
10. Stockholders' Equity
For the three and nine months ended September 30, 2025, a total of
590,703
warrants were exercised into an equivalent number of our common shares at an exercise price of $
18.11
per share, resulting in approximately $
10.7
million in proceeds. There were
no
outstanding warrants as of September 30, 2025.
On October 31, 2022, our board of directors authorized a share repurchase program under which we may repurchase up to $
100.0
million of our outstanding shares of common stock. The repurchase program authorized the repurchase by the Company of its common stock in open market transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), privately negotiated transactions, in block trades, accelerated share repurchase transactions, exchange transactions, or any combination thereof or by other means in accordance with federal securities laws. The authorization permitted management to repurchase shares of the Company’s common stock from time to time at management’s discretion. Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. The share repurchase program was completed in April 2024. From January to April 2024, we repurchased
986,928
shares in the open market at an average price of $
15.12
per share for a total amount of approximately $
14.9
million. All repurchased shares were retired.
In April 2024, we retired all the shares held in treasury resulting from our strategic buyback of GSK’s common shares in the Company in 2021. We recorded the corresponding cost of treasury stock of $
393.8
million in additional paid-in capital.
28
11. Debt
Our debt consists of the following:
September 30,
December 31,
(In thousands)
2025
2024
2025 Notes
$
—
$
192,500
2028 Notes
261,000
261,000
Total debt
261,000
453,500
Less: Unamortized debt discount and issuance costs
(
3,623
)
(
5,156
)
Total debt, net
257,377
448,344
Less: Current portion of long-term debt, net
—
(
192,028
)
Total long-term debt, net
$
257,377
$
256,316
Convertible Senior Notes Due 2025
On August 7, 2017, we completed a private placement of $
192.5
million aggregate principal amount of our 2025 Notes.
The 2025 Notes were sold in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2025 Notes were senior unsecured obligations and carried interest at a rate of
2.5
% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2018.
The initial conversion rate for the 2025 Notes was
57.9240
shares of our common stock per $1,000 principal amount of the 2025 Notes (which was equivalent to an initial conversion price of approximately $
17.26
per share). The conversion rate was subject to customary anti-dilution adjustments in certain circumstances. The 2025 Notes would mature on
August 15, 2025
, unless repurchased or converted in accordance with their terms prior to such date. Prior to February 15, 2025, the 2025 Notes would be convertible at the option of the holders only upon the occurrence of specified events and during certain periods, as described below
. On or after February 15, 2025, holders of the 2025 Notes had the option to convert their 2025 Notes at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2025 Notes. In the event of default or a fundamental change (as defined in the indenture), holders of the 2025 Notes had the option to require us to repurchase all or a portion of their 2025 Notes at price equal to
100
% of the principal amount of the 2025 Notes, plus any accrued and unpaid interest.
In June 2025, we elected to settle the 2025 Notes in shares. Holders had the option to convert their 2025 Notes at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. During June 2025, $
0.5
million of the principal amount was converted into
28,962
shares of our common stock. During August 2025, $
192.0
million of the principal amount was converted into
11,119,956
shares of our common stock.
The remaining balance of the 2025 Notes
of $
25,000
was fully paid in cash upon the maturity date in
August 15, 2025
.
The annual effective interest rate on the 2025 Notes in 2025 was
2.90
%.
Our 2025 Notes balance consisted of the following as of December 31, 2024:
December 31,
(In thousands)
2024
Principal
$
192,500
Debt discount and issuance costs, net
(
472
)
Net carrying amount
$
192,028
29
The following table sets forth total interest expense recognized related to the 2025 Notes for the
three and nine months ended September 30, 2025 and 2024:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2025
2024
2025
2024
Contractual interest expense
$
600
$
1,203
$
3,002
$
3,609
Amortization of debt issuance costs
97
184
472
548
Total interest and amortization expense
$
697
$
1,387
$
3,474
$
4,157
Convertible Senior Notes Due 2028
In March 2022, we completed a private placement of $
261.0
million aggregate principal amount of our 2028 Notes, which will mature on
March 15, 2028
.
The 2028 Notes bear interest at an annual rate of
2.125
% that is payable semi-annually in arrears in cash on March 15 and September 15 of each year, beginning on September 15, 2022.
The 2028 Notes are convertible, based on the applicable conversion rate, into cash, shares of our common stock or a combination thereof, at our election. The initial conversion rate was
38.1432
shares per $1,000 principal amount of the 2028 Notes, subject to customary anti-dilution adjustment in certain circumstances, which represented an initial conversion price of approximately $
26.22
per share.
Prior to September 15, 2027, the 2028 Notes will be convertible at the option of the holders only upon the occurrence of specified events and during certain periods, and will be convertible on or after September 15, 2027, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2028 Notes.
Holders of the 2028 Notes may convert all or a portion of their 2028 Notes prior to the close of business on September 15, 2027, only under the following circumstances:
•
after March 31, 2022, if our closing common stock price for at least 20 days out of the most recent 30 consecutive trading days of the preceding quarter is greater than
130
% of the current conversion price of the 2028 Notes;
•
for five consecutive business days, if the average trading price per $1,000 of Notes during the prior 10 consecutive trading days is less than
98
% of the product of our closing common stock price and the conversion rate of the 2028 Notes on such day; and,
•
upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2028 Notes) or a transaction resulting in our common stock converting into other securities or property or assets.
On or after September 15, 2027, holders of the 2028 Notes may convert their 2028 Notes at any time until the close of the business on the second day immediately preceding the maturity date of the 2028 Notes.
The 2028 Notes will be redeemable, in whole or in part, at our option at any time, and from time to time, on or after March 20, 2025, and on or before the 75th scheduled trading day immediately before the maturity date but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price for a specified period of time. The redemption price will be equal to the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any 2028 Note for redemption will constitute a make-whole fundamental change (as defined in the indenture governing the 2028 Notes) with respect to that 2028 Note, in which case the conversion rate applicable to the conversion of that 2028 Note will be increased in certain circumstances if it is converted after it is called for redemption.
If we undergo a fundamental change, subject to certain conditions, holders may require us to purchase for cash all or any portion of their 2028 Notes. The fundamental change purchase price will be
100
% of the principal amount of the 2028 Notes to be purchased plus any accrued and unpaid interest to, but excluding, the fundamental change purchase date.
30
The indenture governing the 2028 Notes contains customary terms and covenants, including a merger covenant and that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% of the aggregate principal amount of the outstanding Notes may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the Notes to be due and payable immediately.
In connection with the offering of the 2028 Notes, we entered into privately negotiated capped call transactions. The cap price of the capped call transaction is initially $
33.9850
per share and is subject to certain adjustments under the terms of the capped call transactions. The capped call transactions cover, subject to customary adjustments, the number of shares of common stock initially underlying the 2028 Notes. The capped call transactions are expected generally to reduce potential dilution to our common stock upon conversion of the 2028 Notes or at our election (subject to certain conditions) offset any cash payments we are required to make in excess of the aggregate principal amount of converted 2028 Notes, as the case may be, with such reduction or offset subject to a cap.
The annual effective interest rate on the 2028 Notes is
2.70
%.
Our outstanding 2028 Notes balance consisted of the following:
September 30,
December 31,
(In thousands)
2025
2024
Principal
$
261,000
$
261,000
Debt issuance costs, net
(
3,623
)
(
4,684
)
Net carrying amount
$
257,377
$
256,316
The following table sets forth total interest expense recognized related to the 2028 Notes for the
three and nine months ended September 30, 2025 and 2024:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2025
2024
2025
2024
Contractual interest expense
$
1,387
$
1,387
$
4,160
$
4,160
Amortization of debt issuance costs
358
349
1,061
1,033
Total interest and amortization expense
$
1,745
$
1,736
$
5,221
$
5,193
Debt Maturities
The aggregate scheduled maturities of our convertible debt as of
September 30, 2025 were as follows:
(In thousands)
Amount
Years ending December 31:
Remainder of 2025
$
—
2026
—
2027
—
2028
261,000
Total
$
261,000
Deferred Royalty Obligation
As part of our acquisition of La Jolla, we recorded the fair value of its deferred royalty obligation in connection with La Jolla’s royalty financing agreement (“La Jolla Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the La Jolla Royalty Agreement, HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA
®
until either January 1, 2031 or when the maximum aggregate royalty payments have been made, whichever occurs first. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. The maximum royalty rate
through December 31, 2023 was
14
%. Starting January 1, 2024, the maximum royalty rate was increased to
18
% based on the terms of the agreement. The La Jolla Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $
225.0
million.
31
For the three and nine months ended September 30, 2025
, we recognized interest expense of $
1.6
million and $
4.7
million, respectively. For
the three and nine months ended September 30, 2024, we recognized interest expense of $
2.6
million and $
8.1
million, respectively.
The carrying value of the deferred royalty obligation as of September 30, 2025
and December 31, 2024 was $
64.3
million and $
69.5
million, respectively (refer to Note 8, “Balance Sheet Components”). During the
nine months ended September 30, 2025 and 2024
, we made royalty payments to HCR of $
9.5
million and $
6.4
million, respectively. The deferred royalty obligation was valued using Level 3 inputs, and its carrying value as of
September 30, 2025 approximates fair value. The fair value of the deferred royalty obligation was calculated as the discounted deferred royalty obligations based on risk-adjusted revenue projections for GIAPREZA
®
. The annual effective interest rate of the deferred royalty obligation for the current period is
9.74
%.
Under the terms of the La Jolla Royalty Agreement, if we are unable to meet certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA
®
, HCR would have the right to terminate the La Jolla Royalty Agreement and demand payment of either $
125.0
million or $
225.0
million (depending on which obligation we have failed to meet) less aggregate royalties already paid to HCR. As of
September 30, 2025
, inclusive of the aggregate royalties paid to HCR by La Jolla under the La Jolla Royalty Agreement prior to our acquisition, La Jolla paid $
36.7
million of aggregate royalties to HCR. In the event that we fail to pay such amount if and when due in a timely manner, HCR would have the right to foreclose on the GIAPREZA
®
-related assets. HCR has no recourse against any asset other than GIAPREZA
®
.
Certain contract provisions within the La Jolla Royalty Agreement that could result in an acceleration of amounts due under the La Jolla Royalty Agreement are recognized as embedded derivatives that require bifurcation from the deferred royalty obligation and fair value recognition. We determined the fair value of each derivative by assessing the probability of each event occurring, as well as the potential repayment amounts and timing of such repayments that would result under various scenarios. As a result of this assessment, we determined that the fair value of the embedded derivatives is immaterial and, therefore, not recognized as of September 30, 2025
and December 31, 2024. We estimate the fair value of the embedded derivatives for each reporting period until either the features lapse or the La Jolla Royalty Agreement is terminated, whichever occurs first. Any material change in the fair value of the embedded derivatives will be recorded as either a gain or loss in the unaudited condensed consolidated statements of income and comprehensive income.
12. Commitments and Contingencies
Operating Lease
We have operating leases for our corporate headquarters, office spaces and laboratory facilities.
The components of lease cost were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2025
2024
2025
2024
Straight line operating lease costs
$
303
$
303
$
907
$
898
Variable lease costs
(
2
)
(
6
)
3
(
2
)
Total lease costs
$
301
$
297
$
910
$
896
Supplemental cash flow information related to leases was as follows:
Nine Months Ended September 30,
(In thousands)
2025
2024
Cash paid for amounts included in the measurement of operating lease liabilities
$
1,277
$
1,046
Operating lease right-of-use asset obtained in exchange for operating lease obligations
$
—
$
1,156
32
As of September 30, 2025, our operating leases have weighted-average remaining term of approximately
2.6
years
and the weighted average discount rate on our operating lease liabilities was
6.9
%.
Future minimum payments on our operating leases as of
September 30, 2025 were as follows:
(In thousands)
Amount
Years ending December 31:
Remainder of 2025
$
427
2026
435
2027
455
2028
326
2029
83
Total undiscounted lease payments
1,726
Less: imputed interest
(
141
)
Total operating lease liabilities
$
1,585
Purchase Commitments
In April 2024, we entered into a Commercial Supply Agreement with Corden Pharma CHENÔVE SAS (“Corden”), under which we engaged Corden to manufacture and supply certain products related to XACDURO
®
and to perform certain services and studies. Under the agreement, we committed to minimum purchase commitments through December 31, 2027. As of September 30, 2025
, we have approximately $
1.4
million, $
7.3
million and $
5.9
million
in outstanding purchase commitments under the agreement for the remainder of 2025 and for the years 2026 and 2027, respectively.
Legal
Proceedings
From time to time, the Company is involved in legal proceedings in the ordinary course of its business. We are not currently a party to any material legal proceedings except as discussed below.
On February 15, 2022, La Jolla received a paragraph IV notice of certification (the “First Notice Letter”) from Gland Pharma Limited (“Gland”) advising that Gland had submitted an Abbreviated New Drug Application (“ANDA”) to the FDA seeking approval to manufacture, use or sell a generic version of GIAPREZA
®
in the U.S. prior to the expiration of U.S. Patent Nos.: 9,220,745; 9,572,856; 9,867,863; 10,028,995; 10,335,451; 10,493,124; 10,500,247; 10,548,943; 11,096,983; and 11,219,662 (the “GIAPREZA
®
Patents”), which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”). The First Notice Letter alleges that the GIAPREZA
®
Patents are invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Gland’s ANDA.
On March 29, 2022, La Jolla filed a complaint for patent infringement of the GIAPREZA
®
Patents against Gland and certain related entities in the United States District Court for the District of New Jersey in response to Gland’s ANDA filing. In accordance with the Hatch-Waxman Act, because GIAPREZA
®
is a new chemical entity and La Jolla filed a complaint for patent infringement within 45 days of receipt of the First Notice Letter, the FDA cannot approve Gland’s ANDA any earlier than 7.5 years from the approval of the GIAPREZA
®
NDA unless the District Court finds that all of the asserted claims of the patents-in-suit are invalid, unenforceable and/or not infringed.
On February 22, 2023, La Jolla received a paragraph IV notice of certification (the “Second Notice Letter”) from Gland advising that Gland had amended its ANDA filing to include a paragraph IV certification alleging that all claims of the newly-issued and Orange Book-listed U.S. Patent No. 11,559,559 (the “’559 Patent”), which covers GIAPREZA
®
, are invalid, unenforceable and/or not infringed.
On March 22, 2023, La Jolla filed a First Amended Complaint in this litigation adding Gland’s marketing and distribution partners for its ANDA angiotensin II product, Fresenius Kabi USA LLC and Fresenius Kabi SwissBiosim GmbH (collectively, the “Fresenius Kabi Defendants”), as co-defendants. On April 7, 2023, La Jolla filed a Second Amended Complaint in response to the Second Notice Letter, adding claims that the manufacture, use, sale, offer for sale, or import of Gland’s ANDA angiotensin II product will infringe the ’559 Patent. On November 14, 2023, La Jolla filed a Third Amended Complaint adding additional infringement claims against the Fresenius Kabi Defendants.
33
On February 18, 2025, La Jolla, as well as The George Washington University (collectively, with the La Jolla entities, the “Plaintiffs”) entered into a settlement agreement (the “Settlement Agreement”) with Gland and the Fresenius Kabi Defendants (collectively, “Defendants”) resolving the Hatch-Waxman Act concerning Gland’s ANDA filing. Under the terms of the Settlement Agreement, Plaintiffs granted Defendants a perpetual, royalty-free and fully paid-up, non-exclusive, non-sublicensable, non-transferable right and license solely to make, have made, use, sell, offer to sell, import, and/or distribute the product that is subject to Gland’s ANDA in the United States commencing in the early 2030s, subject to certain exceptions as is customary in these type of agreements.
As required by law, the settlement is subject to review by the U.S. Department of Justice and the Federal Trade Commission.
Indemnification and Other Contingencies
In the ordinary course of business, we may provide indemnifications of varying scope and terms to vendors, directors, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by us, our negligence or willful misconduct, violations of law, or intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No material demands have been made upon us to provide indemnification under such agreements, and thus, there are no claims that we are aware of that could have a material effect on our unaudited condensed consolidated financial statements. We also maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors. To date, we have not incurred any material costs and, as of September 30, 2025
, we have not accrued any material liabilities in the unaudited condensed consolidated financial statements as a result of these provisions.
13. Asset Acquisition
In
September 2025
, we entered into an Asset Purchase Agreement with Lyndra to acquire the IPR&D and certain fixed assets related to its Lynx™ long-acting drug delivery platform. We made an upfront cash payment of $
10.2
million and incurred $
0.3
million in direct transaction costs. We are also obligated to pay up to $
20.0
million upon the achievement of certain development, regulatory and sales milestone payments, as well as royalties in a low single-digit percentage on future net sales of the first approved therapeutic product.
Based on the qualitative and quantitative assessments performed under ASC 805,
Business Combinations
, we concluded that the set of assets acquired did not meet the definition of a business and, therefore, accounted for the transaction as an asset acquisition. The assets acquired in the transaction were recorded at their allocated costs based on their relative fair values. The allocated cost of the IPR&D acquired was $
9.4
million, which was charged to research and development expense as it had no alternative future use at the time of the acquisition. The allocated cost of the fixed assets was $
1.1
million and was capitalized within property and equipment.
14. Income Taxes
We recorded income tax expense
of $
7.9
million and $
24.8
million for
the three and nine months ended September 30, 2025
, respectively, compared to income tax expense of $
5.6
million and $
9.6
million for the three and nine months ended September 30, 2024, respectively. The Company’s effective income tax rate for the
nine months ended September 30, 2025
was
18.8
% co
mpared to
40.5
% for the same period in
2024. The income tax expense for the nine months ended September 30, 2025 and 2024
was determined based upon estimates of the Company’s effective income tax rates in various jurisdictions. Our effective tax rate for the nine months ended September 30, 2025 was lower than the expense computed at the U.S. federal statutory income tax rate due primarily to foreign-derived intangible income tax deduction and research and development credits, partially offset by nondeductible expenses and state income taxes.
15. Segment Reporting
We operate as a
single
operating and reportable segment, focused on creating value for our stockholders. We achieve this by maximizing the value of our respiratory royalty portfolio and growing our investments in innovative healthcare assets that address critical unmet medical needs.
Our
Chief Executive Officer
, as the
chief operating decision-maker (“CODM”), evaluates the company’s financial performance and operational efficiency using consolidated net income (loss).
This helps guide decisions related to commercial operations, product development, and regulatory compliance, ensuring resources are allocated effectively to support growth initiatives. Consolidated net income (loss) also helps inform reinvestment strategies to strengthen our market position and drive innovation.
34
The accounting policies of the segment are the same as those described in Note 1, “Description of Operations and Summary of Significant Accounting Policies”.
Our revenues are generated primarily from our collaborative arrangements and royalty payments from GSK, located in Great Britain. We also generate revenue from net product sales of GIAPREZA
®
, XERAVA
®
, XACDURO
®
, and ZEVTERA
®
, as well as license and other revenues. Refer to Note 3, “Revenue Recognition”, for more information on our revenues for the periods presented.
Our long-term assets are located within the United States. The CODM does not review assets at a different level or category than the amounts disclosed in the consolidated balance sheets.
The table below presents the financial information used by the CODM to assess performance, which reconciles to the consolidated net income:
Three months ended September 30,
Nine Months Ended September 30,
(In thousands)
2025
2024
2025
2024
Total revenue
$
107,800
$
89,508
$
296,715
$
266,905
Less:
Cost of products sold
25,643
9,990
45,075
29,433
Amortization of acquired intangible assets
6,618
6,511
19,640
19,391
Selling and marketing
8,591
7,921
24,809
17,184
General and administrative
18,700
18,298
56,385
67,180
Research and development - External services and expenses
2,863
2,420
12,696
4,700
Research and development - Internal expenses
1,439
1,131
3,985
5,289
Research and development - Acquired IPR&D
9,368
—
9,368
—
Changes in fair values of equity method investments, net
(
30,751
)
18,231
(
30,284
)
42,997
Changes in fair values of equity and long-term investments, net
(
31,510
)
16,936
22,509
60,827
Interest and dividend income
(
5,472
)
(
5,500
)
(
14,935
)
(
13,373
)
Interest expense
4,015
5,807
13,389
17,460
Other expense, net
479
914
2,252
3,123
Income tax expense, net
7,909
5,636
24,814
9,634
Consolidated net income
$
89,908
$
1,213
$
107,012
$
3,060
16. Subsequent Events
On October 7, 2025, ITH entered into a Series B Preferred Stock Purchase Agreement with Beacon Biosignals, Inc. (“Beacon”) to purchase
1,448,303
shares of Beacon Series B preferred stock for $
17.5
million. Beacon is an AI-driven neurotechnology company developing treatments for neurological, psychiatric and sleep disorders.
On November 3, 2025, our board of directors authorized a new share repurchase program under which we may repurchase up to $
125.0
million of our outstanding shares of common stock. The timing and amount of any share repurchases under the share repurchase program will be subject to the Securities and Exchange Commission Rule 10b-18 and Rule 10b5-1 requirements and will be determined by our management in its discretion based on ongoing assessments of the capital needs of the business, the market price of our common stock, prevailing stock prices, general market conditions, and other considerations. Share repurchases under the program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, in block trades, accelerated share repurchase transactions, exchange transactions, or any combination thereof or by other means in accordance with federal securities laws. This program has no termination date, may be suspended or discontinued at any time at our discretion and does not obligate us to acquire any amount of common stock.
35
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The information in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve substantial risks, uncertainties, and assumptions. All statements contained herein, other than statements of historical fact, including, without limitation, statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, intentions, expectations, goals and objectives may be forward‑looking statements. The words “anticipates,” “believes,” “could,” “designed,” “estimates,” “expects,” “goal,” “intends,” “may,” “objective,” “plans,” “projects,” “pursuing,” “will,” “would” and similar expressions (including the negatives thereof) are intended to identify forward‑looking statements, although not all forward‑looking statements contain these identifying words. We may not actually achieve the plans, intentions, expectations or objectives disclosed in our forward‑looking statements and the assumptions underlying our forward‑looking statements may prove incorrect. Therefore, you should not place undue reliance on our forward‑looking statements. Actual results or events could differ materially from the plans, intentions, expectations and objectives disclosed in the forward‑looking statements that we make. All written and verbal forward‑looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
Important factors that we believe could cause actual results or events to differ materially from our forward‑looking statements include, but are not limited to, risks related to: lower than expected future royalty revenue from respiratory products partnered with GSK, the commercialization of RELVAR
®
/BREO
®
ELLIPTA
®
, ANORO
®
ELLIPTA
®
, GIAPREZA
®
, XERAVA
®
, XACDURO
®
, and ZEVTERA
®
in the jurisdictions in which these products have been approved; the strategies, plans and objectives of the Company (including the Company's growth strategy and corporate development initiatives); the timing, manner, and amount of 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; the impact of the novel coronavirus (“COVID-19”); the timing, manner and amount of capital deployment, including potential capital returns to stockholders; and risks related to the Company’s growth strategy and risks discussed in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (“SEC”) on February 26, 2025, and as amended on March 24, 2025 (“2024 Form 10-K”), and Item 1A of Part II of our Quarterly Reports on Form 10-Q and below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Item 2 of Part I. All forward-looking statements in this Quarterly Report on Form 10-Q are based on current expectations as of the date hereof and we do not assume any obligation to update any forward-looking statements on account of new information, future events or otherwise, except as required by law.
We encourage you to read our unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. We also encourage you to read Item 1A of Part I of our 2024 Form 10-K and Item 1A of Part II of our Quarterly Reports on Form 10-Q entitled “Risk Factors,” which contain a more complete discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in Item 1A of Part I of our 2024 Form 10-K and Item 1A of Part II of this report, other unknown or unpredictable factors also could affect our results. Therefore, the information in this report should be read together with other reports and documents that we file with the SEC from time to time, including on Form 10-K, Form 10-Q and Form 8-K, which may supplement, modify, supersede or update those risk factors. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.
OVERVIEW
Executive Summary
Innoviva, Inc. (and where context requires, together with its subsidiaries referred to as “Innoviva”, the “Company”, or “we” and other similar pronouns) is a company with a core royalties portfolio, a leading critical care and infectious disease platform known as Innoviva Specialty Therapeutics (“IST”), and a portfolio of strategic investments in other healthcare assets.
36
Our royalty portfolio contains respiratory assets partnered with Glaxo Group Limited (“GSK”), including RELVAR
®
/BREO
®
ELLIPTA
®
(fluticasone furoate/vilanterol, “FF/VI”) and ANORO
®
ELLIPTA
®
(umeclidinium bromide/ vilanterol, “UMEC/VI”). Under the Long-Acting Beta2 Agonist (“LABA”) Collaboration Agreement, Innoviva is entitled to receive royalties from GSK on sales of RELVAR
®
/BREO
®
ELLIPTA
®
as follows: 15% on the first $3.0 billion of annual global net sales and 5% for all annual global net sales above $3.0 billion; and royalties from the sales of ANORO
®
ELLIPTA
®
, which tier upward at a range from 6.5% to 10%.
Our commercial and marketed products also include GIAPREZA
®
(angiotensin II) approved to increase blood pressure in adults with septic or other distributive shock, XERAVA
®
(eravacycline) approved for the treatment of complicated intra-abdominal infections in adults, and XACDURO
®
(formerly known as sulbactam-durlobactam or SUL-DUR) approved for the treatment of hospital-acquired and ventilator-associated pneumonias caused by
Acinetobacter
in adults. In addition, ZEVTERA
®
(ceftobiprole), an advanced-generation cephalosporin antibiotic, is exclusively commercialized by us in the U.S. under a distribution and license agreement with Basilea Pharmaceutica Ltd., (“Basilea”), which we entered into in December 2024. We continue to advance our pipeline, zoliflodacin, a potentially first-in-class, single-dose oral treatment for uncomplicated gonorrhea. In June 2025, the U.S. Food and Drug Administration (“FDA”) accepted the new drug application (“NDA”) for zoliflodacin, which has received Qualified Infectious Disease Product designation (“QIDP”), granting it priority review and the potential for extended market exclusivity. We have established a wholly owned critical care and infectious disease operating platform, anchored by four differentiated commercial products and supported by a promising late-stage development asset.
Additionally, we strategically deploy capital and maintain economic interests in various healthcare companies, including a significant equity stake in Armata Pharmaceuticals (“Armata”), a company focused on development of bacteriophages with potential use across a range of infectious and other serious diseases.
Our corporate strategy is currently focused on increasing stockholder value by, among other things, maximizing the potential value of our respiratory assets partnered with GSK, optimizing our operations and augmenting capital allocation. We continue to diversify our royalty management business through actively pursuing opportunistic acquisitions of promising companies and assets in the healthcare industry and enhancing the returns on our capital.
Third Quarter 2025 and Recent Highlights:
Financial Highlights
•
Royalty revenue: Third quarter 2025 gross royalty revenue from GSK was $63.4 million, compared to $60.5 million for the third quarter 2024.
•
Net product sales: Third quarter 2025 net product sales totaled $47.3 million, consisting of $29.9 million in U.S. net product sales and $17.4 million in ex-U.S. net product sales, compared to $27.8 million in net product sales for the third quarter 2024. U.S. net product sales included $18.2 million from GIAPREZA®, $8.5 million from XACDURO®, $3.2 million from XERAVA®, and $0.1 million from ZEVTERA®, representing a 52% increase compared to total U.S. net product sales of $19.7 million in the third quarter 2024.
•
Income from operations: Third quarter 2025 income from operations was $34.6 million, a 20% decrease from $43.2 million in the third quarter 2024, primarily due to a non-recurring expense related to research and development.
•
Equity and long-term investments: Third quarter 2025 net favorable changes in fair values of equity and long-term investments totaled $62.3 million, compared to unfavorable changes of $35.2 million in the third quarter 2024, were primarily due to share price appreciation of Armata and other equity investments.
•
Net income: Third quarter 2025 net income was $89.9 million, or $1.30 basic per share, compared to a net income of $1.2 million, or $0.02 basic per share, for the third quarter 2024.
•
Cash and cash equivalents: Totaled $476.5 million. Royalty and net product sales receivables totaled $93.5 million as of September 30, 2025.
37
Key Business and R&D Highlights
•
Zoliflodacin: an investigational, first-in-class, single oral dose, spiropyrimidinetrione antibiotic for the treatment of uncomplicated gonorrhea in adults and pediatric patients 12 years and older. It is being developed in partnership with The Global Antibiotic Research & Development Partnership (“GARDP”).
o
In October 2025, IST, in collaboration GARDP, presented three sets of data highlighting key subgroup analyses from the pivotal Phase 3 trial for zoliflodacin at the Infectious Disease Society of America’s IDWeek 2025 annual meeting.
o
Zoliflodacin is currently under Priority Review by the FDA, with a Prescription Drug User Fee Act (“PDUFA”) target action date of December 15, 2025.
•
Subsequent to the NDA acceptance in June 2025, the FDA indicated in its Day-74 letter that it did not plan to hold an Advisory Committee meeting to discuss the zoliflodacin NDA.
•
ZEVTERA®(ceftobiprole): an advanced-generation cephalosporin antibiotic approved in the U.S. for three specific indications – Staphylococcus aureus bloodstream infections (bacteremia) (SAB) in adults, including right-sided infective endocarditis, acute bacterial skin and skin structure infections (ABSSSI) in adults, and community-acquired bacterial pneumonia (CABP) in adults and pediatric patients (3 months to less than 18 years old).
o
In July 2025, IST commercially launched ZEVTERA
®
in the U.S. Initial launch activity has been focused on formulary committee engagement and market access programs.
•
Both ZEVTERA® (ceftobiprole) and XACDURO® (sulbactam for injection; durlobactam for injection) were recently nominated for the 2025 Prix Galien USA Award for Best Pharmaceutical Product by the Galien Foundation, one of the most prestigious honors in the biopharmaceutical and medical technology fields, celebrating groundbreaking achievements that drive meaningful progress.
•
Capital Allocation
o
Innoviva’s portfolio of strategic assets held through the Company’s various subsidiaries was valued at $483.0 million as of September 30, 2025.
o
Innoviva’s Board of Directors has authorized a new share repurchase program under which the Company may repurchase up to $125.0 million of its outstanding shares of common stock. The timing and amount of any share repurchases under the share repurchase program will be subject to the Securities and Exchange Commission Rule 10b-18 and Rule 10b5-1 requirements andwill be determined by Innoviva’s management in its discretion based on ongoing assessments of the capital needs of the business, the market price of Innoviva’s common stock, prevailing stock prices, general market conditions and other considerations. Share repurchases under the program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, in block trades, accelerated share repurchase transactions, exchange transactions, or any combination thereof or by other means in accordance with federal securities laws. This program has no termination date, may be suspended or discontinued at any time at the Company’s discretion, and does not obligate the Company to acquire any amount of common stock.
o
In August 2025, a substantial portion of the Company’s 2025 convertible noteholders elected to convert an aggregate principal balance of $192.5 million into 11.1 million shares of Innoviva common stock prior to maturity.
o
In August 2025, Innoviva invested $15.0 million in a term loan to Armata, which recently announced positive Phase 2 data in
Staphylococcus aureus
bacteremia.
o
In September 2025, Innoviva acquired a proprietary long-acting oral drug delivery platform and related assets from Lyndra Therapeutics, Inc. The transaction included an upfront payment of $10.2 million, plus potential milestone and royalty payments.
38
o
In October 2025, Innoviva invested $17.5 million in the Series B Preferred Stock of Beacon Biosignals, Inc., an AI-driven neurotechnology company developing treatments for neurological, psychiatric, and sleep disorders.
Collaboration Arrangement with GSK
LABA Collaboration
In November 2002, we entered into the LABA collaboration with GSK to develop and commercialize once-daily LABA products for the treatment of chronic obstructive pulmonary disorder (“COPD”) and asthma (the “LABA Collaboration Agreement”). For the treatment of COPD, the collaboration has developed the following combination products:
•
RELVAR
®
/BREO
®
ELLIPTA
®
(“FF/VI”) (BREO
®
ELLIPTA
®
is the proprietary name in the U.S. and Canada and RELVAR
®
ELLIPTA
®
is the proprietary name outside the U.S. and Canada), a once-daily combination medicine consisting of a LABA, vilanterol (VI), and an inhaled corticosteroid (“ICS”), fluticasone furoate (“FF”), and
•
ANORO
®
ELLIPTA
®
(“UMEC/VI”), a once-daily medicine combining a long-acting muscarinic antagonist (“LAMA”), umeclidinium bromide (“UMEC”), with a LABA, vilanterol (VI).
As a result of the launch and approval of RELVAR
®
/BREO
®
ELLIPTA
®
and ANORO
®
ELLIPTA
®
in the U.S., Japan and Europe, in accordance with the LABA Collaboration Agreement, we paid milestone fees to GSK totaling $220.0 million during the year ended December 31, 2014. Although we have no further milestone payment obligations to GSK pursuant to the LABA Collaboration Agreement, we continue to have ongoing commercialization activities under the LABA Collaboration Agreement, including participation in the joint steering committee that are expected to continue over the life of the agreement. The milestone fees paid to GSK were recognized as capitalized fees, which are being amortized over their estimated useful lives commencing upon the commercial launch of the products.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no significant changes in our critical accounting policies as described in the Form 10-K for the year ended December 31, 2024 filed with the SEC on February 26, 2025, and as amended on March 24, 2025.
Results of Operations
Net Revenue
Royalty Revenue
Total royalty revenue, net, as compared to the prior year period, was as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(In thousands)
2025
2024
$
%
2025
2024
$
%
Royalties
- RELVAR/BREO
$
51,508
$
48,199
$
3,309
7
%
$
157,135
$
154,317
$
2,818
2
%
Royalties
- ANORO
11,844
12,313
(469
)
(4
)%
34,816
35,264
(448
)
(1
)%
Total royalties
63,352
60,512
2,840
5
%
191,951
189,581
2,370
1
%
Less: amortization of capitalized fees paid
(3,456
)
(3,456
)
—
*
(10,368
)
(10,368
)
—
*
Total royalty revenue, net
$
59,896
$
57,056
$
2,840
5
%
$
181,583
$
179,213
$
2,370
1
%
39
*Not Meaningful
Total net royalty revenue increased to $59.9 million and $181.6 million for the three and nine months ended September 30, 2025, compared to $57.1 million and $179.2 million, respectively, for the same period a year ago. The increase of total net royalty revenue was primarily due to sales growth in RELVAR
®
/BREO
®
ELLIPTA
®
.
Net Product Sales
Total product sales, net, as compared to prior year period, were as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(In thousands)
2025
2024
$
%
2025
2024
$
%
U.S.
GIAPREZA
®
$
18,152
$
13,082
$
5,070
39
%
$
52,519
$
37,542
$
14,977
40
%
XACDURO
®
8,468
4,262
4,206
99
%
22,790
8,761
14,029
160
%
XERAVA
®
3,189
2,363
826
35
%
9,552
9,614
(62
)
(1
)%
ZEVTERA
®
113
—
113
*
452
—
452
*
Total U.S.
29,922
19,707
10,215
52
%
85,313
55,917
29,396
53
%
Rest of the world
GIAPREZA
®
307
693
(386
)
(56
)%
1,542
1,423
119
8
%
XACDURO
®
15,345
5,521
9,824
178
%
19,537
5,601
13,936
249
%
XERAVA
®
1,720
1,901
(181
)
(10
)%
6,674
5,616
1,058
19
%
Total rest of the world
17,372
8,115
9,257
114
%
27,753
12,640
15,113
120
%
Total net product sales
$
47,294
$
27,822
$
19,472
70
%
$
113,066
$
68,557
$
44,509
65
%
*Not Meaningful
Our net product sales increased during the periods presented, driven by higher sales volume resulting from our strategic commercialization efforts and dedication to delivering our critical care products to healthcare systems. The increase in XACDURO
®
ex-U.S. product sales is attributable mainly to product sales under the Amended Zai Agreement, which is billed at cost.
License Revenue
License revenue, as compared to the prior year period, was as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(In thousands)
2025
2024
$
%
2025
2024
$
%
License and other revenue
$
610
$
4,630
$
(4,020
)
(87
)%
$
2,066
$
19,135
$
(17,069
)
(89
)%
License revenue for the three and nine months ended September 30, 2025 was derived primarily from the Amended Zai Agreement and the Zai Manufacturing Stage Transfer Agreement. During the third quarter of 2024, we recognized license revenue of approximately $4.6 million arising from the Amended Zai Agreement and the Zai Manufacturing Stage Transfer Agreement. In the second quarter of 2024, we recognized $8.0 million in license revenue upon the achievement of a regulatory milestone in China under our license agreement with Zai Lab, and $6.5 million in license revenue under the Amended Zai Agreement.
Cost of Products Sold
Cost of products sold, as compared to the prior year period, was as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(In thousands)
2025
2024
$
%
2025
2024
$
%
Cost of products sold
$
25,643
$
9,990
$
15,653
157
%
$
45,075
$
29,433
$
15,642
53
%
40
Our inventory includes net fair value adjustments resulting from the acquisition of La Jolla, which are being amortized and recognized as cost of products sold when sales occur. The fair value adjustments recorded as part of cost of products sold amounted to $3.5 million and $4.1 million for the three and nine months ended September 30, 2025, respectively, and $1.8 million and $12.1 million for the three and nine months ended September 30, 2024, respectively.
Excluding the impact of the amortized fair value adjustments, our cost of products sold increased during the three and nine months ended September 30, 2025 compared to the same periods in 2024 as a result of higher sales volume, as well as cost of products sold under the Amended Zai Agreement. As of September 30, 2025, our total inventory included the remaining net fair value adjustments resulting from the acquisition of La Jolla of approximately $5.0 million, which will be recognized as cost of products sold when sales occur in future periods.
Research and Development
Research and development expenses, as compared to the prior year period, were as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(in thousands)
2025
2024
$
%
2025
2024
$
%
Compensation and related personnel costs
$
1,262
$
978
$
284
29
%
$
3,745
$
4,071
$
(326
)
(8
)%
External services and expenses
2,863
2,420
443
18
%
12,696
4,700
7,996
170
%
Acquired IPR&D
9,368
—
9,368
*
9,368
—
9,368
*
Facilities related
120
40
80
200
%
100
694
(594
)
(86
)%
Other
57
113
(56
)
(50
)%
140
524
(384
)
(73
)%
Total research and development expense
$
13,670
$
3,551
$
10,119
285
%
$
26,049
$
9,989
$
16,060
161
%
*Not Meaningful
Research and development expenses for the three and nine months ended September 30, 2025 were $13.7 million and $26.0 million, respectively. The expenses for the current periods include the $9.4 million allocated cost of the acquired IPR&D as discussed in Note 13, “Asset Acquisition”, in the Condensed Consolidated Financial Statements. During the current year, we also incurred costs related to the continued advancement of our product candidate, zoliflodacin. Research and development expenses for the three and nine months ended September 30, 2024, which were mainly attributable to post-marketing commitments required by the FDA and ongoing product developments, were $3.6 million and $10.0 million, respectively.
Selling, General & Administrative
Selling, general and administrative expenses, as compared to the prior year period, were as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(In thousands)
2025
2024
$
%
2025
2024
$
%
Selling, general and administrative
$
27,291
$
26,219
$
1,072
4
%
$
81,194
$
84,364
$
(3,170
)
(4
)%
Our selling, general and administrative expenses are primarily incurred as a result of our ongoing efforts to promote our marketed critical care products and drive revenue, maintain regulatory compliance, and support essential administrative functions for general operations. Selling, general and administrative expenses decreased for the nine months ended September 30, 2025 compared to the corresponding period in 2024, during which incremental efforts and expenditures were associated with the commercial launch of XACDURO
®
in September 2023.
41
Interest and Dividend Income and Other Expense, Net
Interest and dividend income and other expense, net, as compared to the prior year period, was as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(In thousands)
2025
2024
$
%
2025
2024
$
%
Interest and dividend income
$
5,472
$
5,500
$
(28
)
(1
)%
$
14,935
$
13,373
$
1,562
12
%
Other expense, net
$
(479
)
$
(914
)
$
435
(48
)%
$
(2,252
)
$
(3,123
)
$
871
(28
)%
Interest and dividend income increased for the nine months ended September 30, 2025, compared to the same period in 2024, due to higher average balances of our cash equivalents, money market funds and other interest-bearing investments.
Other expense, net, was primarily expenses incurred by ISP Fund LP.
Interest Expense
Interest expense, as compared to the prior year period, was as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(In thousands)
2025
2024
$
%
2025
2024
$
%
Interest expense
$
(4,015
)
$
(5,807
)
$
1,792
(31
)%
$
(13,389
)
$
(17,460
)
$
4,071
(23
)%
Our interest expense for the three and nine months ended September 30, 2025 and 2024 comprised mainly of the contractual interest expense and the amortization of debt issuance costs for our 2025 Notes and 2028 Notes, as well as effective interest expense on our deferred royalty obligation related to GIAPREZA
®
. The decrease for the three and nine months ended September 30, 2025, compared to the same period in 2024, was mainly due to lower interest expense on our deferred royalty obligation as a result of higher sales performance of GIAPREZA
®
, as well as the settlement of our 2025 Notes in August 2025.
Changes in Fair Values of Equity Method Investments and Equity and Long-Term Investments
Changes in fair values of equity and long-term investments, as compared to the prior year periods, were as follows:
Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
(In thousands)
2025
2024
$
%
2025
2024
$
%
Changes in fair values of equity
method investments, net
$
30,751
$
(18,231
)
$
48,982
(269
)%
$
30,284
$
(42,997
)
$
73,281
(170
)%
Changes in fair values of equity
and long-term investments, net
$
31,510
$
(16,936
)
$
48,446
(286
)%
$
(22,509
)
$
(60,827
)
$
38,318
(63
)%
The changes in fair values of equity method investments for the three and nine months ended September 30, 2025 were driven by fluctuations in Armata's stock price between the reporting periods. We recorded $30.8 million and $30.3 million in unrealized gain for the three and nine months ended September 30, 2025, respectively, compared to $18.2 million and $43.0 million in unrealized loss for the three and nine months ended September 30, 2024, respectively.
The changes in fair values of other equity and long-term investments primarily reflected the realized gains and losses and net unrealized gains and losses in our strategic investments in Armata, InCarda, Gate, ImaginAb, Lyndra and those investments managed by ISP Fund LP. We recorded $11.7 million in net positive changes and $69.2 million in net negative changes in fair values of equity and long-term investments related to the investments managed by ISP Fund LP for the three and nine months ended September 30, 2025, respectively. We also recorded $16.3 million and $22.0 million net positive changes in fair values of equity and long-term investments for the three and nine months ended September 30, 2025, respectively, related to other long-term investments we made in Armata, and net positive changes in fair value of our investments in Syndeio of $5.7 million and $26.8 million for the three and nine months ended September 30, 2025, respectively.
42
Provision for Income Taxes
We recorded income tax expense of $7.9 million and $24.8 million for the three and nine months ended September 30, 2025, respectively, compared to income tax expense of $5.6 million and $9.6 million for the three and nine months ended September 30, 2024, respectively. The effective income tax rate for the nine months ended September 30, 2025 and 2024 was 18.8% and 40.5%, respectively.
Liquidity and Capital Resources
Liquidity
Since our inception, we have financed our operations primarily through private placements and public offerings of equity and debt securities and payments received under collaboration arrangement. For the nine months ended September 30, 2025, we generated gross royalty revenues from GSK of $192.0 million, net product sales of $113.1 million and license revenue of $2.1 million. Net cash and cash equivalents totaled $476.5 million, royalties receivable from GSK totaled $63.4 million and accounts receivable associated with our product sales and license revenue totaled $30.2 million as of September 30, 2025.
Adequacy of Cash Resources to Meet Future Needs
We believe that our cash and cash equivalents will be sufficient to meet our anticipated debt service and operating needs, as well our ongoing share repurchase program, for at least the next 12 months based upon current operating plans and financial forecasts. Our long-term capital requirements will depend on many factors including the amount of our royalty revenues, sales growth of our currently marketed products, timing of regulatory approval of our product candidates and outcome of our acquisitions and strategic investments. If our current operating plans and financial forecasts change, we may require additional funding sooner in the form of public or private equity offerings or debt financings. Furthermore, if in our view favorable financing opportunities arise, we may seek additional funding in the form of public or private equity offerings or debt financings at any time. However, future financing may not be available in amounts or on terms acceptable to us, if at all. This could leave us without adequate financial resources to fund our operations as currently planned. In addition, from time to time we may restructure or reduce our debt, including through privately negotiated repurchases, tender offers, redemptions, amendments, or otherwise, all allowable with the terms of our debt agreements.
Cash Flows
Cash flows, as compared to the prior year period, were as follows:
Nine Months Ended September 30,
(In thousands)
2025
2024
Change
Net cash provided by operating activities
$
142,417
$
129,451
$
12,966
Net cash provided by (used in) investing activities
$
16,860
$
(48,308
)
$
65,168
Net cash provided by (used in) financing activities
$
12,272
$
(14,026
)
$
26,298
Cash Flows from Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2025 was $142.4 million, consisting primarily of our net income of $107.0 million, adjusted for net non-cash items, which included $19.6 million of amortization of acquired intangible assets, $10.5 million of amortization of capitalized fees and depreciation of property and equipment, $9.4 million of acquired IPR&D, $6.9 million of stock-based compensation, $4.1 million of inventory fair value step-up adjustments and $1.5 million in amortization of debt discount and issuance costs, partially offset by $7.8 million in net changes in fair value of our investments and $13.4 million in net changes in operating assets and liabilities.
Net cash provided by operating activities for the nine months ended September 30, 2024 was $129.5 million, consisting primarily of our net income of $3.1 million, adjusted for net non-cash items, which included $103.8 million in changes in fair value of our investments, $19.4 million of amortization of acquired intangible assets, $12.1 million of amortization of inventory fair value step-up adjustment, $10.5 million of amortization of capitalized fees and depreciation of property and equipment, and $4.7 million of stock-based compensation, partially offset by $15.4 million of deferred income taxes and $9.9 million in net changes in operating assets and liabilities.
43
Cash Flows from Investing Activities
Net cash provided by investing activities for the nine months ended September 30, 2025 of $16.9 million primarily consisted of $71.9 million in sales of equity investments and net purchases and sales of other investments managed by ISP Fund LP and $5.1 million in proceeds from trading securities, partially offset by $49.7 million in purchases of trading securities, $9.4 million in cash paid for acquired IPR&D and $1.1 million purchases of property and equipment.
Net cash used in investing activities for the nine months ended September 30, 2024 of $48.3 million primarily consisted of $48.1 million in purchases of trading securities, $32.3 million in purchases of equity and long-term investments managed by ISP Fund LP and $20.6 million in net purchases of other investments managed by ISP Fund LP. The use of cash for investing activities was partially offset by proceeds of $52.8 million from the sales of equity investments managed by ISP Fund LP.
Cash Flows from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2025 of $12.3 million was primarily due to proceeds from exercise of warrants of $10.7 million and net proceeds from issuances of common stock of $1.7 million.
Net cash used in financing activities for the nine months ended September 30, 2024 of $14.0 million was primarily due to $14.8 million for the repurchase of common stock under our stock repurchase program which concluded in April 2024.
Contractual Obligations
As of September 30, 2025, our notes payable obligation comprised of $261.0 million related to our 2028 Notes, which is due in 2028. Under the terms of the 2028 Notes, we make interest payments of 2.125% of outstanding principal. Refer to Note 11, “Debt” to the Condensed Consolidated Financial Statements for more information.
Our short-term and long-term obligations also include contractual payments related to our operating leases amounting to $1.7 million, with approximately $0.4 million payable through December 31, 2025, and approximately $1.3 million payable through 2029. Refer to Note 12, “Commitments and Contingencies” to the Condensed Consolidated Financial Statements for more information.
As part of our acquisition of La Jolla, we recognized its deferred royalty obligation in connection with the La Jolla Royalty Agreement with HCR. Under the terms of the Agreement, HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA
®
until either January 1, 2031 or when the maximum aggregate royalty payments have been made, whichever occurs first. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. The maximum royalty rate is 18% based on the terms of the agreement. The La Jolla Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million.
Additionally, we have certain contingent payment obligations under various in-license agreements which we are required to make royalty payments or milestone payments upon successful completion and achievement of certain milestones. Refer to Note 4, “License and Collaboration Arrangements” to the Condensed Consolidated Financial Statements for more information.
We also entered into a Commercial Supply Agreement with Corden Pharma CHENÔVE SAS (“Corden”), under which we engaged Corden to manufacture and supply certain products related to XACDURO
®
and to perform certain services and studies. Under the agreement, we committed to minimum purchase commitments through December 31, 2027. As of September 30, 2025, we have approximately $14.6 million in outstanding purchase commitments under the agreement.
We also enter into other agreements in the normal course of business with vendors for commercial, manufacturing, clinical trials and preclinical studies, and other services and products for operating purposes.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
As of September 30, 2025, our debt bears a fixed interest rate and we had no outstanding debt with variable interest rate. Our cash flows on this debt obligation is not subject to variability as a result of changes in interest rates.
We are exposed to changes in the fair value of certain or our investments in equity and debt securities. Fluctuations in the underlying fair value of the investments could result in material gains or losses. Refer to Note 6, “Equity and Other Investments and Fair Value Measurements”, to the Condensed Consolidated Financial Statements for more information.
44
Inflation has increased in recent periods and could continue to increase for the near future. Inflationary factors, such as increases in the cost of our raw materials, supplies, interest rates and overhead costs, as well as trade and other international disputes, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future if inflation rates continue to rise. Significant adverse changes in inflation and prices in the future could result in material losses.
We may face foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars, including contracts with international vendors related to raw material purchases. Our royalty revenue from RELVAR
®
/BREO
®
ELLIPTA
®
and ANORO
®
ELLIPTA
®
is also indirectly exposed to foreign exchange risk as GSK also markets and sells the products outside the U.S. The majority of our cash and cash equivalents, investments, and the majority of our vendor relationships are denominated in U.S. dollars. Therefore, we do not believe that the risk of a significant impact on our operating income from foreign currency fluctuations is substantial.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation as of September 30, 2025, under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures. These controls and procedures, as defined under SEC rules, are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the timeframes specified by the Commission’s rules and forms. Additionally, they ensure that information required to be disclosed by the issuer is accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, to enable timely decision regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance levels.
Limitations on the Effectiveness of Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all frauds. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Innoviva have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There have been no material changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information called for by this Item is incorporated herein by reference to Item 1. “Financial Statements,” Note 12, “Commitments and Contingencies”.
Item 1
A. Risk Factors
Our business is subject to a number of risks, including those identified in Item 1A of Part I of our 2024 Form 10-K. There have been no material changes to the risk factors described in our 2024 Form 10-K.
45
Item 2. Un
registered Sales of Equity Securities and Use of Proceeds
a) Sales of Unregistered Securities
None.
(b) Use of Proceeds from Public Offering of Common Stock
None.
(c)
Purchases of Equity Securities by the Issuer
None.
Item 3: D
efaults Upon Senior Securities
None.
Item 4:
Mine Safety Disclosures
None.
Item 5: Oth
er Information
Trading Arrangements
None of the Company’s
directors or officers
adopted
,
modified
, or
terminated
a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended
September 30, 2025, as such terms are defined in Item 408(a) of Regulation S-K.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
Cover Page Interactive Data File (embedded within the Inline XBRL document)
+ Management contract or compensatory plan or arrangement.
* Furnished herewith.
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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