Innoviva, Inc. (INVA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to day 3 of the UBS Global Healthcare Conference. My name is Paul Diomampo part of the UBS Healthcare Investment Banking team. And it is my pleasure today to introduce Steve Basso, the Chief Financial Officer of Innoviva. Steve will be giving a presentation on the company. And then after the presentation, we will leave some for Q&A. Members of the audience can submit questions through the company -- through conference website rather or raise your hand during the Q&A portion and our team at the back can help to get your questions. Welcome to the conference, Steve.

Thanks, Paul. Appreciate it. Really, thanks for the introduction. I will say it's great to be at the conference. You're really excited to participate with this great venue and I've also had the opportunity to meet a number of great companies as well as investors while I've been here. So as Paul mentioned, my name is Steve Basso. I'm the CFO of Innoviva. Today, I'd like to take you through a bit about who Innoviva is as this company as we have somewhat of a unique company background and then also talk about why we're so excited about the direction of our business coming out of a really strong quarter. And so Innoviva was initially formed to maximize the value of the royalty streams that the company had developed and licensed to GSK to commercialize. These royalty streams have done very well over the years and turned Innoviva into a highly profitable company with significant cash flows, we would expect to continue for years to come. As these cash flows have grown, Innoviva began to focus more on capital allocation strategies to thoughtfully deploy these cash flows into areas of high unmet medical need with strong growth potential in order to create long-term value for our shareholders. Our largest investment to date was the creation of a critical care and infectious disease therapeutics platform that today is an industry leader. And so as a result, today, Innoviva is comprised of 3 main assets. The first is our royalty portfolio from the respiratory drugs that are marketed by GSK, that we would expect to provide close to $1.5 billion of revenue over the next 5 years. Next is our high-growth critical care and infectious disease therapeutics platform that we call Innoviva Specialty Therapeutics, and or IST. This platform has generated over $100 million in sales and license revenue in the last 12 months and has more than doubled year-over-year. And then finally, we have a diversified portfolio of strategic health care investments that is currently valued at over $500 million with a very attractive risk reward profile. I'd now like to go into a little bit more detail on the royalties as well as our therapeutics platform and show why we are so excited about the prospects of our business. And so our royalty portfolio is the foundation of Innoviva. We received sizable revenues from 2 best-in-class commercial respiratory therapies -- excuse me, that are commercialized by GSK that provide a dependable source of cash flows that allowed us to create the other parts of our business. This portfolio has paid over $0.25 billion in sales last year, royalties, excuse me. And based on 5-year analyst consensus projections, we would expect these to continue to deliver $200 million a year. I think it's also important to note that these royalties come with only a very minimal cost basis. We're really excited about these royalties and the prospects because they have proven to be very differentiated as well as resilient. These are some of the best selling respiratory drugs in the world, and they're well characterized and trusted. And although they're somewhat more mature in the U.S. The majority of revenues today now comes from ex U.S. territories, where the competition is often not as strong, allowing for continued strong growth in many regions around the world. All of this has combined to help this portfolio significantly outperform expectations over the past years and to continue to thrive across the world despite these competitive pressures, which we would anticipate to continue, especially given the strong momentum we've seen coming into 2024. Finally, both royalty streams have meaningful additional longevity backed by strong IP protection as well as an additional buffer provided by the manufacturing complexity that serves as a moat for competitive entrants as we've seen in other similar drug device combinations in the past. Turning our attention to our critical care and infectious disease therapeutics platform IT. IST is a robust and growing business in the critical care and infectious disease space, and we think it has tremendous growth potential ahead. This business was designed as a result of a very specific investment thesis that we had developed over the years. We saw the challenge that similar companies in this space faced, which resulted in depressed valuations across the board. And we believe that with thoughtful asset selection, intelligent capital allocation as well as a focus on scale and efficiency that we could create a profitable business through a roll-up strategy. And today, IST is just that. It was specifically designed to serve as a profitable platform in the infectious disease and hospital space and has so far exceeded our expectations. This business is built on a portfolio of truly differentiated products. They have strong synergies with each other. We have products with novel mechanisms of action that provide step changes in therapeutic effect for areas such as septic shock, complicated intra-abdominal infections, Carbapenem-resistant, acinetobacter and also a recent Phase III readout that could address significant unmet needs and STIs amid the growing threat of resistant gonorrhea. This portfolio is commercialized with an efficient, targeted operational platform, with an experienced team that has some of the best concentration of therapeutic area expertise in the industry, including not only commercial, but also medical, regulatory as well as CMC. This business is in a very strong financial position where we have a strong revenue base as well as long remaining growth runway. Our 2 most established products, Giapreza and Xerava have solid basis of the utilization and market positions with growth drivers that are unlocking significant additional value. We have a recent drug launch in XACDURO that is in high-growth mode and a market with a huge unmet medical need very few treatment options. And then we have the pre-NDA product in Zoliflodacin that, if approved, will likely tap into what is to be the biggest market of all both in the U.S. as well as the rest of the world. Each of these products has patent protection into the mid- to late 2030s, with options for further extension and exclusivity. And so we are also confident in the durability of these revenues. And finally, we believe that our current platform is just at the beginning. This will serve as the foundation for further investment for Innoviva as well as IST to drive both organic as well as inorganic growth. And now to spend a minute on each of the products in our high-growth therapeutics portfolio. I'll start with Giapreza. Giapreza was developed to treat shock patients using a version of the body's own angiotensin 2 peptide. This is a different mechanism of action compared to the existing treatment options. And in its pivotal trial, Giapreza was tested on patients already on high doses of both first and second line therapies who still had low blood pressure. And it was shown -- Giapreza was shown to restore therapeutic blood pressure levels in as little as 5 minutes. And this is critical because there are more than 140,000 shock patients in the U.S. each year who fail first and second-line vasopressor therapies. And these are extremely sick patients who often expire, if not treated successfully, leading to significant unmet medical need. The most significant growth drivers for Giapreza are inclusion in the next guidelines update, and new data generation, which has been a major priority in partnership with some of the top researchers in the therapeutic area, both of which we expect to have a major impact on access and awareness for this life-saving therapy. Next, XACDURO. XACDURO was the first anti-infective drug designed to treat acinetobacter baumannii which represents a critical unmet medical need in the U.S. as well as around the world. This pathogen is one of the top priority threats from both the CDC and the WHO. And prior to XACDURO launch, there were no good treatment options for carbapenem-resistant organisms, which make up a majority of worldwide cases and they have a mortality rate of approximately 40% in the U.S. Prior to this approval, physicians were forced to throw anything at these patients and hope that something would work. Today, XACDURO is the first to be approved for this disease, specifically in the label. Another key value driver is our targeted approach. XACDURO, unlike other branded antibiotics, is not positioned for broad empiric use but rather for specific identifiable cases. This means that systems do not need to have as many concerns about big budget impacts. And it also does not create the same stewardship concerns of other antibiotics. We believe this is dramatically improve access and have already seen indications of that in its early launch phase. Xerava, the novel tetracycline antibiotic that was designed as a powerful broad-spectrum empiric therapy option with coverage of multiple resistant organisms with rising rates of ESBL-mediated resistance as well as overreliance on carbapenems, the unmet need for Xerava continues to increase in the United States. In addition to its value as an effective carbapenem-sparing empiric therapy, Xerava is also better than comparable treatments in preventing C. difficile infections and is more tolerable and potent than previous generation type cyclings both of which are expected to drive Xerava utilization as a substitute for certain patients and institutions. And we are optimistic about Xerava's future think that these macro trends will continue to drive growth for this product for years to come. And finally, we'd like to discuss the next potential addition to our portfolio, which is Zoliflodacin. Zoliflodacin is in development for the treatment of gonorrhea including strains that are resistant to the current standard of care injectable ceftriaxone. We recently announced the positive results of the registrational Phase III trial where Zolifidacin the primary efficacy endpoint of non-inferiority to ceftriaxone as well as azithromycin, which are the current global standards of care. Furthermore, Zoliflodacin was both safe and well tolerated. The importance of Zoliflodacin in this market is illustrated by 2 key differentiators. The first and most critical is that Zoliflodacin is expected to be efficacious against gonorrhea strains that are resistant to injectable ceftriaxone. Around the world, this is a significant and growing concern. And in some countries, injectable tracks on resistant is already as high as 30% and this is growing around the world. The U.S. is expected to follow the same trend, and we are already seeing early signs of this. Secondly, even before injectable ceftriaxone resistance develops, there is an unmet need for an efficacious and convenient oral therapy as an alternative to the current treatment that requires one or more painful injections administered by a health care official in an office. Availability of this new oral therapy option would also better serve unique populations such as telehealth and those requiring expedited partner therapy which is a common practice with STIs. All of this points to the fact that Zoliflodacin is well positioned to be a standard of care for over 1 million patients in the U.S. and over 80 million patients around the world. Moving on, as a summary of our earnings for the third quarter shows how our business is growing across the portfolio. We have really had a milestone year for Innoviva. We have shown consistent quarterly growth of our marketed portfolio more than doubling compared to the same quarter last year. A big portion of that growth is driven by our launch of XACDURO which we are pleased to say has exceeded our first year expectations and is on trajectory to continue this rapid growth. In addition to the substantial growth of our marketed products over the past year, our core royalty business has also significantly outperformed analysts' expectations, which we believe signals continued durability of these products for years to come. And in addition to the revenue growth, we've also had exciting achievements across the business, including updated guidelines that resulted in preferred placement for XACDURO and Xerava in their respective therapeutic areas. We announced approval in China for XACDURO, which brought with it more than $14 million in milestone payments. XACDURO was recently nominated as a finalist in the prestigious P-Galien awards. And the team has been present at a number of important scientific conferences and continued progress towards the filing of the NDA for Zoliflodacin in early 2025. It's a very exciting time for Innoviva, and we are proud to be delivering innovation to patients in areas of critical unmet need. And so to summarize, we're very confident in the prospects of our business. We feel we are ideally positioned in this current environment given our profitability, our cash position, these attractive assets as well as our strong team. All of this will enable us to take advantage of exciting near-term opportunities ahead of us. We see tremendous potential for both organic and inorganic growth of our business. On the organic side, we still have untapped growth for each of our marketed products as well as additional global opportunities to create more value and get our products to more patients who need them. We believe that with one more year of growth our therapeutics business will be profitable as a stand-alone entity. Looking at inorganic growth opportunities as well as other capital deployment priorities, there are a wealth of options. We are seen as a partner of choice in the hospital and critical care space. And we believe that our platform would have significant synergies with any other related asset that we would bring in. And now is a good time to be in the market as there are many differentiated therapeutic assets at attractive valuations in this space. In summary, we are very fortunate to be in the position we are, and we're very excited about what the next years hold. Thank you very much for your time. And now I believe we'll transition to questions. Thank you.

Thank you very much for that presentation. Steve certainly feels like Innoviva is addressing an area or areas with significant unmet need here and is building a growing sustainable business and doing so we will go now to a few questions from the audience. I have a few questions here. And for those of you who want to submit additional questions, as a reminder, you can use the UBS Healthcare Conference website to do so. So Steve, I guess, first question, the hospital space in general and anti-infectives in particular, have both been pretty challenging spaces from a drug development and commercialization perspective. Why have you decided to invest in these areas? And what are you doing differently to kind of ensure success?

Yes. Thanks, Paul. I think that's a very good question. I think if we reflect back the history here, when we were looking at investing in this area, we observed that there were a few structural challenges that I think we're concerning to many investors, but for us, really presented a pretty unique opportunity. And I would say these structural challenges were really sort of focused, if you will, in sort of 2 key areas. One is if you had a number of companies that were developing truly, I would say, not truly differentiated products, which I think in light of some of the stewardship concerns and other bearers in this space, it was challenged for these companies. This was at a time where you had big pharma, which was deprioritizing their investment space. So you had a lot of single-asset companies that we're trying to build out commercial infrastructure, which I think in a pace challenge, and I think in a time when funding becomes scarce, really created depressed valuations across the board, which Paul, to your point, is where we think the opportunity was really quite outstanding. And I think with our depth of our resources, i.e., the strength and durability of our continued royalty cash basis is an ability to invest here. And we felt, as I said, it really focused on finding these differentiated assets, looking for these head and gems that we could put together, build them in such a way that we are focused on scale and efficiency, i.e., getting this business and driving it towards profitability that would really create this very exciting roll-up platform. And I think that's exactly what we've done. And I think we're really pleased and excited with this business. So thank you.

Great. And so you touched on this on your response and also in the presentation, it being kind of a rollout strategy. Could you maybe talk a little bit more about which areas Innoviva can find growth beyond the current therapeutics portfolio that you guys have?

Yes, yes, of course. I think this is another source of exciting growth Innoviva. As you mentioned, you touched on the existing marketed portfolio, each of which has, I would say, very exciting organic growth opportunities for each of them. But also, we would see that inorganic provides a source of additional growth through partnerships or sort of other asset acquisitions. And I think this is where the power of the platform comes into play where we really have, I would say, an opportunity without every lift, provided there's sufficient sort of commercial overlap that we could add assets quite synergistically and be efficient on doing that. And I think this is really the power of sort of building from where we are today going forward. So

Great. Great. And let's pivot to your pipeline. Obviously, you kind of talk to or introduce Zoliflodacin. What are you hearing from the market, patients, prescribers, payers? Like what's the opportunity and feedback you've received on this asset?

Yes. Yes. I think it's really quite exciting. And this is where I think we've been quite active in a number of scientific conferences engaging with KOLs as stakeholders in this market. And I think that's where we're learning quite a bit that in addition to the powerful impact of this drug in light of growing resistance, being able to provide an oral therapy, which is something that we could provide through, I would say, efficient distribution mechanism, like you talked about telehealth or some of these other devices as well as the opportunity to get to patients through expedited partner therapy is really quite insight. And we're hearing a number of really great feedback toward that point. And that being said, I think as we've talked about, were disclosed earlier, our plan is to file the end in early 2025, and I think we're pleased with our progress there and we remain on track to do that. So as I mentioned as well, this is a product that is likely to be the largest market for all of our portfolio. In the U.S., there's 1 million patients as well as another 80 around the world. So it's a truly exciting opportunity for IST and for Innoviva more broadly.

I will add one question other than the NDA filing you mentioned as we kind of close the books in 2024 and look into 2025, what should investors be kind of excited about or watch around the Innoviva story. What are you guys looking to achieve in the next 12 months or so?

Yes. I think as we've seen so far this year, it's really been a tremendous year for Innoviva. We've now had a number of quarters with strong commercial execution. XACDURO not only a continued trajectory of the launch, but also continued acceleration of that, I think, will be a really key value driver for us going forward. As well as some of these organic pieces that we talked about as it relates to additional guidelines placement that could help drive each of these products going forward. And then I would say, honestly, we also have this really compelling portfolio of strategic health care assets. And we're continuing to support these companies. We see those as really exciting growth potential, and we'll continue to support them and try to accelerate their growth as well.

Okay. Great. Thank you so much, Steve. We certainly wish you and the rest of the Innoviva team as well as you build your business given the unmet need in the space. We look forward to hearing more from you. And thanks again for joining us today.

Thank you. It's my pleasure.